Pros & Cons of Debt Management Plans

Debt management plans reflect the commonality of debt in America.

Paying Debts Becomes Easier

Debt management plans reduce the number of payments you must make.

Debt management plans may result in a reduction of fees, interest and monthly payments. You make only one neat payment to one company, who distributes funds for you and communicates with your creditors. This can help you pay all creditors more consistently, saving your credit rating and perhaps staving off bankruptcy.

Risks and Limitations

Debt management plans don't keep creditors from getting money through collection.

Debt management plans do not erase your debt; creditors still can send your accounts to collection agencies. You must be extremely consistent in payments, and missing one payment means missing all payments to all creditors. You may not take on more unsecured debt. Interest under the plan may increase the amount of money paid on your debts overall. You may need to pay monthly fees for the service as well as an initial set-up fee, depending on the company.

Bottom Line

Debt management plans may cause initial temporary credit score dips but help credit overall.

Debt management plans will not help much if you want to refinance a car or home, or if you have low interest rates and can pay your debts yourself, according to the Reduce Debt Faster website. However, the plans can minimize the hassle of keeping many debts straight, thereby reducing stress and protecting your credit score in the long term.