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How A Debt Management Plan Works

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If you are having trouble paying off your credit card debt and/or other debt, you may be wondering how debt management plansdebt management plans work. A debt management plan works with your creditors to bring your accounts current, lower interest rates and eliminate fees. This means that more of your payment goes toward reducing your account balances. It can help you pay off debts fasterpay off debts faster, and save money on interest. An added benefit is that once the debt management plan is established, diminishing collection calls and creditor balances help reduce worry and stress about your debt situation.

If you are considering a debt management plan, look for a reputable, nonprofit credit counseling agency to assist you. GreenPath offers free debt and credit counseling, and if appropriate to your situation, we can support you through a debt management plan.

Other Considerations

In general, all open lines of credit are closed while you are active on a debt management plan. The best way to successfully complete a DMP and liquidate your debt is by including all cards on the program.

However, if you need to keep one card for emergency or business purposes, you and your counselor should discuss the situation and evaluate your options. GreenPath does not charge for a debt counseling session.

How Debt Management Plans Work

Reputable companies will always start with a confidential, free debt counseling assessment of your current situation. A counselor or advisor will ask a series of questions to help you understand your income and expenses. Throughout the assessment, they will share information to help you identify ways to reduce expenses and save money and explore other feasible options. They may also support you to develop a customized budget. Together, you will create a debt management action plan to achieve your financial goals.

The debt management plan helps you eliminate credit card debt faster by bringing accounts current, lowering interest rates and waiving late and over the limit fees. Deposits are made directly to the agency, and monthly disbursements are made on your behalf to the creditors to begin the process of paying down the debt. You make one or two affordable deposits each month – and the agency pays your creditors. A deposit schedule will be created that ensures all payments are received by your creditors prior to the due dates.

This is not debt settlement. Typically, a debt management plan is set up to pay off 100% of your unsecured debt within five years. Because many creditors agree to lower interest rates, more of your payment goes toward reducing the principal balances, and less is applied towards interest charges. Collection calls and letters will typically stop after 2-3 successful months on the program.

Some debt management programs give you the added option to include other priority payments on the plan, such as the mortgage, car payment, and/or utilities. This functions as a great money management tool to assist you in remaining current on your bills, and allows you to focus your efforts on the household expenses.

Will a Debt Management Plan Affect My Credit Report?

GreenPath, like other credit counseling agencies, does not report any information to credit bureaus. Only your creditors report information, and there is a wide variance in the way they do so. The impact on your credit report may be positive or negative, depending on your situation and the specific creditors involved. Once your credit lines are closed, you may notice an initial dip in the score because the scoring formula factors in amount of available credit.

We recommend that you take a long-term approach. Focus on resolving your financial situation and your credit report will improve over time. Paying bills on time is the single most important contributor to a good credit score. Any late payments are viewed negatively by lenders, and remain on your credit report for seven years.

Support When You Need It

Keep in mind that, while on a debt management plan, you will have the help of a financial coach throughout your program. We understand that you may encounter some bumps along the way and you will always have the guidance of your counselor and an account maintenance representative if your financial situation changes. We know that it can be very hard at the beginning of a program, especially if you have to make major changes to your budget. We encourage new clients to keep us informed of their struggles so we can offer encouragement to get you through this tough time.

GreenPath Financial Service

Take control of your finances, get tailored guidance and a hassle-free budgeting experience. GreenPath offers personalized advice on how to manage your money.


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GreenPath is a non-profit credit counseling organization. GreenPath’s goal is to offer guidance and support to individuals seeking to manage and overcome financial challenges through education, financial counseling and debt management programs. The information provided is for educational purposes only. Consulting with a licensed financial advisor and tax advisor is recommended before making any major financial decisions. GreenPath is not a debt settlement company, credit repair company, credit repair service, nor does GreenPath provide debt consolidation loans. By using this website, you acknowledge and agree that GreenPath is not responsible for any financial decisions you make based on the information provided on this site.

Need help setting up a spending plan? Call GreenPath today for a free counseling session.

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