Information from the Washington State Department of Financial Institutions

How Debt Management Plans Work

The Basics Of How A Debt Management Plan Works

  • You deposit money each month with a credit counseling organization and it uses these deposits to pay your bills, loans, and other debts according to a payment schedule they’ve worked out with you and your creditors.
  • Creditors may agree to lower interest rates or waive certain fees if you are repaying through a debt management plan.
  • Once the creditors have accepted the debt management plan, it is important to make regular, timely payments and read your monthly statements promptly to make sure your creditors are being paid according to your plan.
  • If payments to your debt management plan and creditors are not made on time, you could lose the progress you’ve made on paying down your debt, or the benefits of being in a debt management plan, including lower interest rates and fee waivers.

Questions To Ask Before Setting Up A Debt Management Plan

If you are considering working with a credit counselor for the first time, the Federal Trade Commission recommends that you ask these questions:

  1. What services do you offer?
    Look for an organization that offers a range of services, including budget counseling, savings and debt management classes, and counselors who are trained and certified in consumer credit, money and debt management, and budgeting. Counselors should discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems now and avoid others in the future. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation.
  2. Are you licensed to offer your services in my state?
    Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.

    The U.S. Department of Justice’s U.S. Trustee Program provides a list of government-approved credit counseling agencies on its website.

  3. Will I have a formal written agreement or contract with you?
    Don’t commit to participate in a debt management plan over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you are told you need to act immediately, consider finding another organization.
  4. What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, which one? If not, how are they trained?
    Try to use an organization whose counselors are trained by an outside organization that is not affiliated with creditors.
  5. What are your fees? Are there set-up and/or monthly fees?
    Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you’re concerned that you cannot afford to pay your fees, ask if the organization waives or reduces fees when providing counseling to consumers in your circumstances. If an organization won’t help you because you can’t afford to pay, look elsewhere for help.

Beware Of Debt Management Scams

Some organizations that offer debt management plans have deceived and defrauded consumers. If you are paying through a debt management plan, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your debt management plan.