Key takeaways

  • If you are overwhelmed by debt and can’t handle it on your own, you could approach a professional debt management company for help.
  • A nonprofit debt management company can, for a fee, help you consolidate your debt, negotiate a lower monthly payment or lower interest rates, among other approaches.
  • There could be consequences for your credit score — and taxes — if you go through a debt relief company and settle your debt for less than the amount you owe.

If you’re struggling with mounting unsecured debt, debt management is a way to keep up with your bills. You can use many strategies to manage your debt, including the debt snowball method or working with a credit counseling organization. When you do, you will create a debt management plan that fits your budget and financial situation.

Although credit cards simplify paying for large purchases or bills, managing your debt and making timely payments isn’t always as easy. Most Americans have around at least one credit card, and the average balance on a credit card is just over $6,500 as of 2023. Debt management is one of many potential solutions to help you overcome debt that has gotten out of hand.

What is debt management?

Debt management is a way to get your debt under control through financial planning and budgeting. The goal of a debt management plan is to lower your current debt and move toward eliminating it.

You can create a debt management plan for yourself or go through credit counseling. Both ways have advantages and disadvantages. Setting up a plan yourself is the simplest way forward, but sometimes it can be helpful to have an outside partner providing negotiation assistance, accountability or both.

How does debt management work?

Debt management plans address unsecured debts like credit cards and personal loans. Debt management usually happens in one of three ways.

DIY debt management

The first option is a DIY version of debt management. In this version, you create a budget for yourself that will allow you to pay off your debts and maintain your financial stability. The debt snowball or debt avalanche methods are the most common DIY versions of debt management.


  • Who this is better for: If you struggle with overspending but can afford to make monthly debt payments by being more disciplined, this approach could work for you.
  • Biggest advantages: You can protect your credit rating by making timely monthly payments and paying in full. There’s also the opportunity to create a realistic plan that includes milestones and a debt-payoff date to keep you motivated during the repayment journey.
  • Biggest disadvantages: You won’t have insight from a professional who may have more effective strategies in mind to get out of debt faster. Furthermore, creditors may not be open to negotiations.

You can use budget calculators, repayment calculators and financial management apps to keep you on track. If need be, you can try to negotiate with your creditors to lower your monthly payments or interest rates. Once the debt is under control, you can keep or close the account.

Debt management with a credit counselor

The second form of debt management is credit counseling. You can find a credit counselor in your area through the National Foundation of Credit Counselors. There are both nonprofit and for-profit credit counselors. Read reviews and understand any fees you might be charged before signing up for a credit counselor.

A credit counselor will help you come up with a plan to repay your balances and can negotiate a debt management plan (DMP) with your creditors if necessary. It usually spans three to five years and includes concessions — like a lower interest rate, reduced monthly payment or fee waivers — to help you get out of debt faster. Depending on your circumstances, the creditor may close your accounts as each debt is paid off to avoid creating any new debt.


  • Who this is better for: People who want professional help managing their finances and credit score.
  • Biggest advantages: A DMP is generally more cost-efficient to get out of debt than paying creditors directly. You’ll get a set monthly payment and debt-payoff timeline if negotiations are successful. The collection calls will stop. Plus, the impact on your credit score won’t be as significant as it would if you settled the balances for less than you owe.
  • Biggest disadvantages: You may not have access to your credit accounts for the duration of the DMP. Plus, you’ll relinquish control of your debts to the counseling agency. Typically, a single monthly payment, which may include a monthly fee, is made to the agency each month and distributed to your creditors.

Debt relief company

You also have the option to hire a debt relief company to help resolve your outstanding unsecured debts. Debt relief companies work by negotiating with creditors and lenders to reach settlement deals for less than what you owe.

When you sign up, you will make monthly payments to the debt relief company. Your payments are held in an account only you have access to. In the meantime, many debt relief companies will advise you to halt payments to creditors and lenders to speed up the negotiation process.

When a settlement is reached, it will be presented to you. If you agree, funds from the account you’ve been paying into will be used to make the payment. The debt relief company will also collect a settlement fee from the same account.


  • Who this is better for: Debt relief could be ideal for individuals drowning in unsecured debt who’ve tried settling on their own without much luck and would prefer not to file bankruptcy.
  • Biggest advantages: You could lower the amount you pay monthly towards debt obligations. You may get out of debt faster and keep more money in your pocket, assuming settlement offers are reached.
  • Biggest disadvantages: Creditors and lenders aren’t obligated to accept settlement offers, which could land you in court, and your credit score will likely be damaged by settling your debts for less than the full amount owed. Plus, you could owe federal income tax if the amount forgiven is over $600.

How can debt management help?

Look for a licensed nonprofit debt management company. Not all states require debt management service providers to be licensed, but it’s always good to check. It’s also a positive if a debt management firm belongs to a professional association, such as the Financial Counseling Association of America or the National Foundation of Credit Counselors.

As an example of what you might look for, Cambridge Credit Counseling states that it has been able to bring down monthly credit card payments by an average of 25 percent. It has also negotiated average credit card interest rates from 22 percent down to 8 percent, the firm says. And it touts an average debt repayment period of 48 months.

Agency Debt management approaches
Cambridge Credit Counseling Consolidating debt, reducing card rates, reducing total monthly payment
Debt Management Credit Counseling Debt consolidation, reducing card rates, lower monthly payments
National Foundation for Debt Management Debt consolidation, lower interest rates, better understanding of money management issues
Debt Reduction Services Debt consolidation, reduced monthly payments, lower interest rate

Is debt management right for you?

Debt management can be a helpful tool for releasing debt, but it isn’t immediate. Debt management does not address secured debts like mortgages or car loans. However, it might be an option to explore if you:

  • Have multiple high-interest, unsecured debt like credit cards.
  • Are nearing or at the maximum credit limit for each account.
  • Have reliable income to make your payments.
  • Don’t anticipate needing to open a new credit account during your DMP.
  • Prefer that an agency or company negotiate your DMP rather than doing it yourself.
  • Have addressed risky financial habits, like overspending.

Does debt management affect your credit score?

While debt management can be a helpful tool to get debt under control, it can negatively affect your credit score.

Hard inquiries

A hard inquiry may happen at a few different points in debt management. For example, if you attempt to get a lower interest rate, you may trigger a hard inquiry. Hard inquiries stay on your credit report for two years and can impact your credit score for one year.

However, this is a short-term effect and can easily be countered by other factors. For example, if you can get your rate lowered and are able to pay your monthly bill consistently, you’ll see a positive effect on your payment history, which makes up 35 percent of your credit score.

Missed payments

While consistent payments will positively affect payment history, missing payments will cause your credit score to dip significantly. If you or your credit counselor are using a tactic of withholding payment from your creditors to get a better rate, expect your credit score to go down.

Credit utilization

Another key factor in the health of your credit score is your credit utilization. It makes up 30 percent of your credit score and is linked to how much debt you carry compared to your available credit. The ideal credit utilization is between 10 and 30 percent. This means that your debt should equal no more than 30 percent of your available credit across all accounts.

Having all your debt consolidated into one bill can be beneficial for paying things off. However, your credit utilization ratio may increase if you close accounts that you consolidate. DMPs also often require that you close credit card accounts as they are paid off. You will also affect your credit mix, which makes up 10 percent of your credit score, and your credit history, which accounts for 15 percent.

Alternatives to debt management plans

When thinking about how you will handle your debt, choose the best option for your current financial situation. Debt management is one way to handle debt, but other options are worth considering.

Balance transfer credit cards

Balance transfer cards can offer you the ability to move your debt to a 0 percent intro APR card. This will give you the option to pay off your debt without having to worry about interest. Balance transfer cards come with fees, including a fee for each balance transfer in most cases. If you are not moving your balance to a preapproved card, you may have a hard inquiry on your credit report.

Balance transfer cards are typically available if your credit score is in the good-to-excellent range, but may not be available if your score is in a lower range. You’ll also need a clear plan for repaying your debt before the 0 percent intro APR period ends. After the promotional period ends, you’ll be subject to the regular variable APR on any remaining balance.

Personal loans

Personal loans allow you to receive a lump sum of money to pay off your debt all at once. Like a balance transfer credit card, it is another debt consolidation option.

A personal loan may be a good fit if you know you will need more time to get your debt under control. Personal loans will offer a repayment period that typically ranges from two to seven years. Unlike a credit card, you will have to repay your loan by the end of the specified period and there is no potential for a promotional rate.

Your debt consolidation loan interest rate will depend on your credit score. Interest rates for personal loans can range from around 8 to 36 percent, so make sure that the rate you receive is lower than the rate you are currently paying on your outstanding debt. It’s important to shop top personal loans on the market ahead of applying to get a read on what you might qualify for.


While bankruptcy should be a last resort, it is a guaranteed way to eliminate some or all of your debt — or force your creditors into an agreeable payment plan.

With Chapter 7 bankruptcy, you will relinquish or sell non-protected assets. The money received will then be used to pay off your unsecured debt. This is the better option if you are unable to manage a payment plan.

With Chapter 13 bankruptcy, you are put on a reasonable payment plan based on your income. Unlike negotiated payment plans, which can be rejected, creditors are required to work with the court to ensure you are able to pay your debts. The process takes three to five years and is best if you earn enough to repay some or most of your debt.

The bottom line

It can be overwhelming to manage debt, and finding a solution to get rid of it is often even more challenging. Fortunately, debt management options, like the debt snowball, debt avalanche, debt management plans and debt settlement, can help you get the relief you need and deserve.

They’re not all created equal, though, as some strategies have more long-lasting adverse effects than others. You may also find another financing option, like a balance transfer credit card or personal loan is more suitable. Weigh the benefits and drawbacks of each debt management method to make an informed decision that helps you meet your debt-payoff goal in a way that works best for your financial situation.