Debt Management
a plan created by a credit counseling agency or debt management company to pay off debt
Debt Management Definition:
Debt management is a process where a debtor works with a credit counseling agency or debt management company to create a plan to pay off their debt. The debt management plan typically involves negotiating with creditors to lower interest rates and monthly payments, consolidating debts into a single monthly payment, and establishing a timeline for paying off the debts. The goal of debt management is to help the debtor become debt-free while making payments that are affordable and sustainable. Debt management can also involve financial education and counseling to help the debtor learn how to manage their finances better and avoid future debt problems.
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Frequently Asked Questions:
How does debt management work?
You make one monthly payment to a credit counseling agency, which then distributes the funds to your creditors. The agency may be able to secure concessions like lower interest rates, re-aging past-due accounts, and waiving late or over-limit fees.
How much does debt management cost?
Nonprofit credit counseling agencies usually charge $20–$50 per month. For-profit companies may charge significantly higher fees, sometimes 10–15% of the total debt.
What are the downsides of debt management?
Fees can add up over time.
Entering a DMP may temporarily lower your credit score.
Programs require a long-term commitment of three to five years.
Some companies engage in unethical practices, so research providers carefully.
Debt Management vs. Credit Counseling
Credit counseling focuses on education, budgeting, and guidance, often at little or no cost. Debt management is a service that actively manages repayment by working directly with your creditors.
Debt Management vs. Debt Consolidation
Debt consolidation replaces multiple debts with a single new loan. Debt management restructures your existing debts without taking out a new loan.
What is Debt Settlement?
Debt settlement negotiates to pay less than the full balance owed. While it can reduce total debt, it may cause significant credit score damage and carries legal and financial risks.
