Debt Management Strategies: Select the Best One for You

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Plans for Debt Management: Choose the One that is Right for You
Find out about different programs for managing debt's offerings and costs to determine the best fit.
Written by Sean Pyles Senior Writer | Personal finances, debt Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet's "Smart Money" podcast. On "Smart Money" Sean talks with Nerds across the NerdWallet Content team to answer listeners' questions about personal finance. With a focus on thoughtful and practical money tips, Sean provides real-world guidance that can help consumers better the financial situation of their lives. In addition to answering listeners' financial questions on "Smart Money" Sean also interviews guests who are not part of NerdWallet and produces special segments on topics such as the racial wealth gap, how to start investing and the history of student loans.
Before Sean lead podcasting at NerdWallet, he covered topics that dealt with consumer debt. His work has appeared on USA Today, The New York Times as well as other publications. When Sean isn't writing about personal finance, Sean can be found digging around the garden, taking runs and taking his dog on long walks. He is based at Ocean Shores, Washington.





Aug 18, 2021


Editor: Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Her previous experience included copy and news editing for many Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in journalism and mass communications from Iowa's University of Iowa.







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Are you feeling overwhelmed by debt? A debt management plan might be the answer.
This tool for debt repayment puts you on the path to settle your credit card debts, typically credit cards in 3 to 5 years. With a DMP it is possible to have multiple debts rolled into one monthly payment and creditors reduce the interest rate. In exchange, you sign a payment plan that usually lasts between three and five years. Keep in mind that interest rate cuts are standardized across credit counseling agencies, based on your creditors guidelines as well as your budget.
Here's a review of debt management plans at some major non-profit .
Agency / availability



Average fees



Available in 50 states


A startup charge of $31 is included.
20 monthly fees



Available in all states , with the exception of Minnesota


Start-up fee of $42
$30 monthly fee



It is available in all 50 US states as well as Puerto Rico


A startup charge of $24 is included.
$28 monthly fee



In 50 States


$35 startup fee
Monthly fee of $29



In 50 States


$35 start-up fee
A monthly payment of $24 is charged.









Plans for managing debt: Pros and cons
Pros:
Could cut your interest rate by more than half.
It helps pay off debt quicker than doing it yourself.
Consolidates multiple debts into one payment.

Cons:
Is mostly for credit card debt; cannot be used for student loans as well as medical debts or tax obligations.
Takes three to five years and you're typically unable to make use of credit cards or open new lines of credit when you're in the plan.
A missed payment could sabotage the plan and end your interest rate cuts.

It's debt-crushing time
Register to join the link and keep track of everything from credit cards to mortgages in one location.






Is a debt management plan right for you?
DMPs aren't a good option for everyone. Based on the agency, only 10% up to 20 percent of customers end up using this debt relief option. Of those who do, around 50% - 70% of them complete the plan, depending on the time of year and how the agency tracks the completions.
You may want to consider the possibility of a DMP if:
Unsecured debt like credit cards, can range from 15% and 39 percent of your income.
You earn a steady salary and believe you could pay off your debt in five years if you had an interest rate that was lower.
It is possible to live without opening up new lines of credit when you are in the plan.

Alternatives to a credit management strategy
DMPs may not be the best option for you . The problem debt from student loans as well as medical bills will generally not be covered by these plans. Other options:
If your debt problem is less than 15% of your annual income, you could take an DIY approach using the or method.
A , if you've got adequate credit to be eligible you can also combine the debts of several creditors into one with the lower rate of interest. You control the length of time that the loan is and retain your option to open new credit lines.
You may want to consider this option could be a better option if your debt amounts to greater than 40 percent of your annual income, and you have no means of paying it off within five years. A debt reduction tool will rapidly give you a new start, and consumers' credit scores can start to rise in as short than six months.

What do you require to know
If you believe that an DMP may be the most suitable solution for debt relief, start by . Consider:
Certification and accreditation: Look for an agency that's an affiliate of the . They require that agencies be recognized by an independent body and both require certification and an acceptable standard of excellence for counselors.
Access: Decide how you'd prefer to receive services: by phone, in person or online.
Cost: Fees vary by agency and state that you reside in, and the financial needs you have. Before you sign up, verify how much you'll be paying each month to your debt and in fees.



About the author: Sean Pyles is the executive producer and host of NerdWallet's Smart Money podcast. His work has appeared on The New York Times, USA Today and elsewhere.







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