Do You Have to Put All Unsecured Debt Into Debt Management or Can You Choose?

Deciding to participate in a credit counselor's debt management plan is a prudent step in the right direction toward financial stability. Although it's tempting to consider keeping one credit card to use in case of emergencies, the likelihood of the agency approving that course of action is slim. However, you may be allowed to keep a corporate card if losing the card materially affects your ability to work.

The Debt Management Plan

The debt management plan allows a struggling borrower to negotiate better terms with his lenders using the resources of a credit counseling agency. The lenders agree to the new terms, which often include reduced or eliminated interest rates, provided that the borrower agrees to close the credit line and include all eligible lines of credit in the debt repayment plan. In this way, the borrower reassures the lender that it's being treated fairly.

The Corporate Card Exception

Certain counselors allow a corporate-sponsored credit line to remain open if the borrower must use it for work purposes. This is only permitted if the card's balance is paid in full every month and the balance is 100 percent reimbursable to the borrower by her employer. Even with this caveat, it may be difficult to find a counselor that agrees to leave it out of the debt management plan. Simply not including the card on the borrower's list of debts isn't an option, as the counseling agency may request a credit report when she applies for the debt management plan.

Violating the Rules

If the borrower violates the debt management plan's rules, the counselor has the right to kick the borrower out of the plan. If the borrower decides on his own to go off the plan because he needs the credit, the borrower should prepare for stiff rate hikes and undesirable terms on the old cards. If the borrower wants to establish a new line of credit, he should first speak with his credit counselor to determine the best course of action.

Completing the Plan

Once the borrower has made all scheduled debt management plan payments, the borrower is released from the plan. It's up to the creditor whether or not an account can be reopened. Successful completion of a debt management plan goes a long way toward improving credit, especially if it's been a number of years since the borrower's last delinquent payment. At that point, the borrower can usually open a new credit card account; hopefully, she'll have learned from the experience and will monitor her finances more closely in the future.