Creating a Debt Management Plan

debt management plan

A debt management plan is one of the many services a credit counseling agency provides. Also referred to as a repayment play, this tool details your financial position and how much to pay each month to get out of debt.

Your credit counselor works with you to create the plan and ensure it fully addresses your circumstances. Once finalized and you agree to the payment specifics, you send a single monthly payment to the counseling agency. Your counselor will then use funds from this lump-sum payment to forward money, on your behalf, to each of your creditors.

A debt management plan is often used in tandem with budgeting guidance, creditor negotiation, consolidation, and other related initiatives.

The counseling agency will typically charge a flat fee for the preparation of your plan and a nominal monthly fee to execute it every month.


Your repayment plan takes into account your current income from all sources, your fixed and variable living expenses, and your financial obligations. This includes how much you owe on your mortgage, vehicle and credit cards.

Using this information, your counselor will draft a plan that takes into account how much money you can comfortable afford to pay each month towards your card balances.


During the development of your repayment plan, your counselor may negotiate lower interest rates on some of your credits cards and/or request fee waivers to reduce the total amount you owe. Of course, this helps reduce how much you have to pay each month to fulfill your financial obligations.

Having a debt management plan and someone to help coordinate your payments makes it easier to manage what you need to pay each month. It also saves you time and headaches.

Sending one payment to your counseling agency on a set day of the month is far easier to keep track of than making multiple payments on different due dates to different creditors.

A repayment plan helps you be more disciplined about making on-time payments and avoid missing payments. And, it is possible to clear your balances quicker with a plan than without one.


A repayment plan also comes with some disadvantages. Your counseling firm may need to advise your creditors about the plan – and have them sign off on the payment terms. So, there is a good chance that the plan will be reflected in your credit report.

It is essential that you carefully review your plan to ensure it is accurate and realistic. Don’t agree to the terms until you are satisfied with everything outlined in the plan. This includes being confident that you can afford the monthly payments.

Otherwise, the chance that you will miss payments increases. This could result in termination of the repayment plan and could end up having a disastrous effect on your credit rating.

Be aware that your credit card accounts may be closed or frozen when on a debt management plan is put in place. This is not necessarily a drawback; it is simply something you should know.

In the end, when you strictly adhere to your plan by making regular, on-time payments, you’ll be on the road to rebuilding your credit history and living debt free.

Related Information - Debt Management Plan

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Questions to Ask About Counseling Services

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Student Loans and Your Credit Score

Student Loan Debt Consolidation

Student Debt Forgiveness

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