Debt management plan or a debt consolidation loan?
A debt management plan is set up by a nonprofit credit counselor: you make one payment to them, they pay your cards at lower rates. No new loan.
A debt management plan and a debt consolidation loan both leave you with one payment. Only the loan is new credit.
The plan suits people a lender turns down or prices near their card rates.
What a debt management plan is
A nonprofit credit counselor asks your card companies for lower rates and waived fees. You send the counselor one payment a month, and it pays each card.
The FTC says a plan can take 48 months or more to finish. Most plans ask you to stop using the cards in it.
Debt management plan vs debt consolidation loan
The table puts the two side by side on what changes your cost and your credit.
| Consolidation loan | Debt management plan | |
|---|---|---|
| Rate | Set by the lender; 11.9% bank average | Lowered by each card company, by agreement |
| Fees | Origination fee at some lenders, none at others | Small setup and monthly fees |
| New credit | Yes, a new loan and a hard inquiry | No new loan |
| Your cards | Paid off and can stay open | Usually closed while in the plan |
| How long | 2 to 7 years, your pick | 48 months or more |
| Who it suits | Good or fair credit with an offer under the card rate | Turned down, or offers near the card rate |
What a plan costs
Counselors charge a small setup fee and a monthly fee, and state law limits them in many states. Ask for both in writing before you agree.
The saving comes from the lower card rates, not from a smaller balance. You still repay everything you owe.
How to find a credit counselor you can trust
The Justice Department keeps a list of approved credit counseling agencies by state. Start there, not with an ad.
A counselor who pushes settlement or asks for money before any work is done is not running a plan.
When the loan is the better move
If a lender offers you well under your card rate, a loan clears the cards now and keeps them open. Run your numbers on the debt consolidation calculator.
If every offer is near 25% or you were turned down, the plan usually wins. See consolidating without a loan for the other routes.
Related topics
- Credit card consolidation loan
- Discover
- Student loans with other debt
- Debt consolidation loan calculator
Before you borrow
Does a debt management plan hurt your credit?
The plan itself is not a loan. Closing cards can lower your available credit for a while, and on-time plan payments help over time.
How long does a debt management plan take?
The FTC says 48 months or more.
Is a debt management plan better than a consolidation loan?
Only when you cannot get a loan well under your card rate. Otherwise the loan is faster and keeps your cards open.
Compare the plan and a loan on your cards
You have card balances and two ways to fold them into one payment. The right one depends on the rate a lender will offer you. Call and a specialist puts a real loan offer next to a plan for your cards.