Ask the Experts: Who Do I Owe on a Debt Management Program?

Why you still owe your original creditors even after you enroll.

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Dear Gary,

Does this program pay off all of my current debt and then it’s transferred to your company or do you negotiate with my current creditors to reduce my interest rates and monthly payments? I really just want to figure out who I actually owe the debts to once I enroll. Is it you or my creditors?

Pam R.
Rincon GA

An expert answer from Gary Herman


People ask that question all the time. They want to know, “Does your program pay off my bills and then I owe you the money?” And it’s a very common misconception, and I think part of it’s because people in our industry use the term “debt consolidation,” which is really only meant to suggest that you’re making one payment.

How it works is actually the opposite. The consumer always owes the money to the original creditor that’s put on the program. The only thing a debt management program does is qualify the consumers for programs that their creditors make available for people who come through these programs to give them better interest rates, in most cases better payments. And they do it, in part, because the risk of you not being able to pay off bills is greatly reduced when you use a program like ours.

The only question left to be seen for each individual consumer is, “Do you qualify for the program?” and that’s what we specialize in doing, in addition to helping you figure out what your other options are.

But you still owe the money to the original creditors. Our program is completely voluntary – you can drop out at any time you want. All of the payments you’ve made still get credited to the original creditor, but now you just need to go back to paying them and your interest rates can and probably will go back up to where they were before.


With a debt management program, you still owe your original creditors – or in some cases, to a third-party collector if the debt has already been charged off by the original creditor. A debt management program simply allows you to simplify your monthly payments by consolidating all of those obligations into a single payment.

You make that payment to the credit counseling agency, but that doesn’t mean that you’re paying your debt off to credit counseling agency. Instead, your payment to the agency is divided up and sent to your creditors. So you’re the balances on your accounts go down every month even though you’re not making the payments directly to your creditors.

As mentioned in the video, part of the confusion comes from the use of the phrase “debt consolidation.” This term simply means is that your debts are rolled into a single monthly payment, but there are actually several ways of doing this. One way is through a debt consolidation loan, where you take out a personal loan and use the funds you receive to pay off your credit cards and other debts. With this type of consolidation, you owe the new lender who gave you the consolidation loan and you don’t owe your original creditors anything. The same is true of the other do-it-yourself consolidation option where you transfer balances from high-interest credit cards to a credit card with a low interest rate.

Who do you owe to pay off your debts

However, a debt management program is a little different. You sign up through a credit counseling agency. The agency works with you to arrange a monthly payment schedule that works for you, then they negotiate with your creditors to get them to accept that arranged schedule.

At the same time, they also negotiate to reduce or eliminate the interest rates applied to your debts. As a result, even though you pay each creditor less each month, you eliminate your debts faster because they’re not growing as much with high interest charges added each month. They also stop future penalties for late payments, so you aren’t wasting money out of every payment you make on interest charges and fees.

Of course, if you drop out of the program, the creditor has the right to reset those high interest rates and start applying new fees to your account if you struggle to keep up with your payments. Any payments you made while on the program are deducted from what you owe, but you’ll still be obligated to the original creditor to pay off the remaining balance. This is why it’s in your best interest to see the program through to the end so you don’t have to worry.

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