How It Works

Understand how debt management works to help you reach zero.

As a consumer, you want to know how a particular debt solution actually helps you accomplish your goals. Most people don’t become familiar with debt solutions until they need to use them. This can create uncertainty that holds you back. With that in mind, this page is designed to help you understand how a debt management program works. That way you can decide if it’s the right choice for relief in your situation.

How debt management works in 3 steps

How a debt management program works to help you reach zero
  1. A certified credit counselor evaluates your debt and budget to see if you qualify. Eligibility depends on how much you owe and your income – credit score is not a factor.
  2. Once they help you enroll, they negotiate with your creditors to reduce or eliminate interest charges. Each creditor approves the inclusion of their in the program.
  3. You pay the agency one payment each month and they distribute the money to your creditors as agreed. You can typically expect to pay off your debt in-full within 36-60 payments.

An in-depth breakdown of how a debt management program works before, during and after…

What to expect prior to enrollment

In order to enroll in a debt management program (DMP), you have to go through credit counseling first. This part of the process is free. You contact a nonprofit credit counseling agency. They provide a free debt and budget evaluation to see where you stand. They review all of your options for debt relief, including whether you can qualify for a debt management program.

Eligibility depends on:

  1. How much (and what types of) debt you have
  2. Whether you have funds available to keep up with an adjusted payment schedule

Once it’s determined that you’re eligible, the credit counselor helps you compare a DMP to other options for relief.  If you determine together that a debt management program is your best option, you can enroll immediately. It’s usually recommended to enroll quickly, so you can start enjoying relief from your debt as soon as possible.

What to expect once you enroll

After you’ve enrolled in the program, the credit counseling agency continues to work closely with you. They:

  1. Arrange a payment schedule that works for your income
  2. Help you create a balanced budget so aren’t reliant on credit cards
  3. Negotiate with creditors to reduce or eliminate interest charges
  4. Work with creditors to stop future penalties and fees
  5. Distribute monthly payments to your creditors on your behalf
  6. Help you make arrangements if you run into trouble and can’t make a payment
  7. Provide resources to help you learn better credit and budgeting habits

The agency essentially runs point on your debt management plan to take the pressure off of you. You only have to worry about making one payment every month. You also don’t have to deal with the stress of collection calls.

What to expect after you complete the program

Once you graduate from a debt management program and successfully eliminate all of your debt, the credit counseling stays in touch. Their goal is to ensure that once you get out of debt, you can stay that way.

This involves providing continuing education in personal finance, from budgeting and debt management to saving and investing. You essentially build a lifetime partnership to ensure you can achieve and maintain financial stability in the long term.