How Successful Are Debt Management Programs?

Consumers can enroll in debt management programs through credit counseling agencies if they're unable to pay their bills or work out repayment agreements with their creditors. Debt management program participants deposit money each month with their credit counseling agency, which uses the deposits to pay participants' creditors. Still, some people may not get the debt relief they wanted even after they enroll in a debt management program.

Creditors

People who are deep in debt may discover that a debt-management program is no more affordable than paying their regular bills. Credit counselors work with their debt management clients' creditors to reduce what their clients owe. Creditors may be willing to offer some concessions to reduce what's owed, but that doesn't mean the reduced amounts will be affordable for clients. As a result, some people fail to complete their debt management programs because their reduced payouts to creditors are still too high for them to sustain while paying their other expenses.

Success Rates

An MSN Money article notes statistics from the National Foundation for Credit Counseling that indicate how many of the 3.2 million people who contacted the NFCC in 2008 completed their debt management programs. The article titled "Why Credit Counseling Often Fails" says one-third of the clients enrolled in the program, but about 45 percent of them dropped out. The article also says another third of the people who contacted the NFCC in 2008 had too much debt or insufficient incomes for counselors to assist them through a debt management program.

Fees

Credit counseling agencies get some of their financial support from creditors who give them a portion of the money collected from clients to pay their debts. However, many counseling agencies also charge their clients fees. Your success in a debt management plan is partly linked to whether you can pay the total cost of fees an agency charges, especially if you're already on a tight budget. A CNN Money article titled "Click Here to be Debt-Free" says monthly service fees for debt-management programs can be as high as $50.

Considerations

Your credit score probably will drop after you enroll in a debt-management program. That's partly because creditors usually close customers' accounts after they begin participating in a debt management program. However, people who have fallen behind on paying their bills already have damaged credit ratings. Furthermore, debt management plans can help some people avoid bankruptcy. It will take time to build a good credit rating after enrolling in a debt management program. Program participants may be able to get new credit cards and loans at some point, but they won't get the best terms or low interest rates until they raise their credit scores.