19 Debt Management Program Pros and Cons

A debt management program is a strategic effort to remove unsecured debts from personal or household responsibilities. Medical bills and credit card obligations are the two most common issues managed by this approach to repaying obligations. Enrolling in an effort like this makes it easier to take control of your current and future finances.

It is essential to remember that a debt management plan is not a loan. The companies that provide these services work on your behalf with your creditors. They work to reduce your monthly payment, interest rates, or both so that your monthly payments are affordable. Part of the agreement is a reduction or removal of penalties that might be on the account.

You must agree to a payment schedule that takes care of the obligation in 3-5 years under most circumstances. Although you can take care of your obligations with this plan, there are several debt management program pros and cons you will want to review before enrolling in one.

List of the Pros of a Debt Management Program

1. You can work toward a debt solution without another lending product.
When you decide to use a debt management program, then you can work toward repaying all of your obligations without digging a deeper hole for yourself. One of the most common ways that consumers pay off their debts is to use a consolidation loan, but that just creates another payment. If you use your credit cards or experience another medical emergency, then you’ll need to meet the obligations of each creditor or face more financial problems.

This program will help you to get out of debt in as few as 36 months if you meet the plan’s minimum thresholds. Then you can make your monthly payments to support a higher credit score while having more discretionary money each month.

2. You can create a budget plan that is a reasonable approach to your debt.
When you work with a debt management program, then you are creating a monthly budget that offers a financial goal for you to meet. You won’t be scrambling to pay rent or take care of your mortgage because your one monthly payment fits into something your budget can afford. That means you can take care of your obligations without the same levels of financial stress you might be facing today when there are multiple accounts you’re trying to manage.

As long as you can make your monthly payments on time, you can stay in the program and see your debt start disappearing right away. Some providers can even negotiate a lower balance to pay.

3. Your creditors will stop calling you about missing payments.
When you work with a debt management program, then you’re creating a repayment plan that is acceptable to your creditors. Instead of receiving constant calls from debt collectors, your representatives through the plan will work out the details of what your monthly obligation will be moving forward. This advantage gives your creditors an incentive to stop calling you because they’re working with someone that is building a mutually beneficial proposition. You’re going to be headed toward a debt-free life, and your creditors are going to get most (if not all) of the money that you owe them on a predictable schedule.

4. You can learn how to set meaningful financial goals for yourself.
When you start working with a debt management program, then part of the process is to learn how to create useful financial goals. You will begin to learn how to live within your means, how to make a budget, and what to do if your obligations begin to stretch out because of emergencies or poor spending habits. The overall goal isn’t just to get you out of debt. You’re also working toward a lifestyle that keeps future debts away because you’re saving and investing in the future.

5. You can qualify for lower interest rates on your debt.
The easiest way to lower the amount you pay each month on your debt is to have the program work with creditors to reduce your interest rate. Even a couple of percentage points of savings can be enough to help you save hundreds of dollars per month. You might lose the ability to access your credit line afterward, but that is a fair compromise to make when you’re eliminating as much debt as possible. You’ll want to talk to your credit counselor about what all of your options will be as they go through the negotiating process.

6. You still have enough money to take care of your living essentials.
Your credit counselor is going to talk with you about what your basic living costs are while setting up the repayment plan with your creditors. That means you’ll have enough money to pay your mortgage, rent, utilities, living expenses, and secured loans. The remainder will become an amount that can be divided among each creditor. You’ll make a deposit each month with the management program, and then that company distributes the funds to each obligation on your behalf.

7. The cost of a debt management program is minimal for most consumers.
Most debt management programs operate out of non-profit agencies, so there is little cost to begin working with them. The average setup fee in the United States is only $50, and some plans don’t charge anything to bring you into the program. You might have a monthly charge to pay to distribute your money to each creditor, but most plans don’t exceed $75 per month for this benefit. The median cost of this fee is $32.

Most programs charge a fee based on your current income, so it could be nothing. Every situation is different when considering this benefit. That means your credit counselor will let you know what the proposed fee chart will be when you start to develop the repayment plan.

8. You are in control of the final agreement.
When you decide to start working with a debt management program, then both sides must agree to the terms and conditions that the credit counselor negotiates on your behalf. That contract involves what your monthly payment will be, the fees that are part of the overall process, and how long the payment schedule runs. If you don’t like the amounts that you see in any part of the agreement, then you have the right to refuse the settlement. That means you’ll still need to pay your monthly obligations with your creditors, but it is an out that’s available if you change your mind.

The program begins when you sign and return the agreement. If you never do so, then the plan doesn’t start.

9. You don’t need to negotiate with your creditors.
If you don’t see yourself as a good negotiator, then calling a creditor to talk about the available options for your debt can be an intimidating process. When you work with a debt management program, then you’re going to have a counselor act as a liaison for all of your accounts. Any questions or concerns you have about your responsibilities will funnel through the agency administering your plan.

10. If you get more money for some reason, then you can pay off your debt.
You can still pay off your entire obligation at any time when you use a debt management program. If you receive a windfall for some reason, then there is no penalty with most plans to pay off everything early.

List of the Cons of a Debt Management Program

1. Your credit report could take a long-term hit with a debt management program.
Getting out of debt is a good thing. Creditors are going to look at the fact that you entered a repayment program instead of filing for bankruptcy when reviewing future applications. The one problem that you can encounter is that the account notes will list that you settled your account instead of paying it off in full under most circumstances. That means your credit score will stay lower until that amount is no longer reported, which can take 5-7 years in the United States.

If it takes you 60 months to fulfill your debt obligations and 7 years for that account to age off your file, you could be dealing with this issue for 12 years. Filing for bankruptcy would have a maximum 10-year obligation on your credit record in most jurisdictions.

2. You are going to be making that monthly payment for a long time.
Most households don’t willingly go into debt with credit cards or medical bills. There are family emergencies, cars that break down, and illnesses that occur outside of your control. Entering into a debt management program can help you to take control of the present, but your obligations are going to last anywhere from 3-5 years in most plans. That means you’re gambling that nothing bad is going to happen to you during that time so that you can get out of debt for good.

If you end up having more medical bills or other debts develop in the future, you might not have the opportunity to get them incorporated into your current payment plan. Trying to take care of both obligations could put you into a situation that is even worse in the future.

3. You don’t get to use your credit cards while in the repayment plan.
Some credit card providers will waive this disadvantage, but most of them will require your account closure to create the repayment plan. That means you won’t have the opportunity to use this financial product if your finances get into a pinch. You’ll need to create an emergency savings account to support yourself and your household for the things that happen in life, like a broken water heater or a flat tire. You will also need to be judicious about your spending to ensure that you can meet your monthly repayment obligations without fail.

Some institutions will restrict your ability to apply for additional credit when you’re in the debt management program. That means it might not be possible to take out a loan for a car or some other need you have until you complete the 3- to 5-year process.

4. You cannot miss any payments in a debt management program.
If you receive approval to enter a debt management program, then you cannot miss any monthly payments while it is active. When your payments are late for any reason, then you’ll lose the progress you’re making on decreasing the debt. Some lenders might cancel the entire program altogether with only one missed payment, which means you’re losing the lower interest rates. You might even have the penalties and fees that were lowered or waived reinstated on the account.

That’s why you will want to have every component of your agreement in writing when working with a debt management plan. Doing so will eliminate any ambiguity about what your expectations are when making the monthly payments.

5. The first months of the repayment plan can be challenging.
It can take between 30-90 days for a debt management program to transition away from the monthly statements you receive from each creditor. If you don’t make your monthly payments to each one during this period, then you could fall deeper into debt. It might be enough to trigger possible legal actions against the amount you owe, such as going to court to obtain a judgment on the amount.

That’s why your debt counselor will encourage you to make those monthly payments until the settlement period starts. You might find yourself paying the negotiated payment each month and the monthly minimums for each amount for up to three cycles, which means you’ll have even less money to use.

6. You will receive monthly statements from the program and your creditors.
When you enroll in a debt management program, then you will start receiving a monthly statement from your plan administrator. Your creditors will also continue sending their documentation to you each month. It is up to you to make sure that your payments are being credited correctly to each account. If you see a problem in this area, then you’ll need to contact your debt management agency immediately to see what is happening.

If you don’t follow up with a debt management plan regularly, then this trust could lead you into future financial programs if improper administration occurs. You must verify every payment to protect your future.

7. Your monthly payment remains the same throughout the entire program.
If you can pay off one debt before others, then the monthly payment you send to the debt management program remains the same. When there are extra funds available because you’ve cleared an obligation, the funds are re-split to pay off the other debts faster. That means your payment is predictable each month for up to five years, but it also means that you are not going to see a reduction in your obligations as you would if you were paying off creditors by yourself. This issue could become a problem if you encounter future debt problems, like an unexpected medical bill, that changes your financial outlook.

Some programs can renegotiate your monthly payment when emergencies occur, but you’re generally locked into that amount until you clear the debt covered by the plan. If you do have the option to restructure your obligation, then your credit counselor will likely charge you another set of fees.

8. You can do the same work by yourself.
Did you know that you can contact your creditors personally to negotiate the same structures that a debt management program provides on your behalf? Most lenders are willing to work with people who have a genuine desire to take care of their obligations. You might have payments moved to the back of the loan, receive a lower principal amount to repay, or a reduction in your interest rate so that the required minimum each month is more affordable.

You won’t have the option to create one easy monthly payment with multiple creditors, but you can sometimes save more than if you were in a debt management program.

9. You must verify the work of your debt management program.
Most debt management programs provide the exact services they describe. Your job is to verify everything, which means you need to contact each creditor personally. You must ask them if they accepted the terms of the plan outlined by your counselor. If they don’t know what you’re talking about, then you have some work to do to ensure that your financial interests remain protected.

There can be some delays between when you sign the contract and when the plan receives implementation. If you sent the letter back through regular mail, it could be 5-10 business days before it begins. When it has been at least one month and your creditor has no knowledge of your repayment efforts, then it is time to start working with a different agency.


When evaluating the pros and cons of a debt management program, it is essential to remember that almost every plan is a 3- to 5-year obligation. That means you must stay disciplined financially as you make this commitment. Dropping out of the program for any reason means you’re losing all of the concessions that your creditors made for you.

You’ll be asked to close all of your credit cards or credit lines when you enroll in your preferred program. The only option that is sometimes allowed is one account for emergency use, so it can be a challenging hurdle to face.

Then remember to contact your creditors personally to verify that they accepted the terms of your repayment plan.

Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.