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What is a debt management plan?

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An individual agrees to a debt management plan when seeking systematized strategy and course of action to pay off all of his debt, according to Clearpoint. Not all consumers with substantial debt are served by the benefits of a debt management plan, but many consumers who seek debt counseling see this as the best way out of their financial woes.

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Debt counseling offers a variety of benefits to those with significant debts, explains Clearpoint. It stops calls and letters from collection agencies once they have been informed that the person has joined such a plan. Such changes also help reduce stress for the individual, knowing that there is a way out of the current drastic financial situation. Debt management plans consolidate all or most of a consumer's debt, so that he only has to make one monthly payment, making it easier to keep up with debt payments.

Debt management plans also set up a system of repayment that helps the individual avoid having to file bankruptcy, says Clearpoint. The debtor who chooses not to file bankruptcy avoids serious damage to his credit rating and higher interest rates for up to a decade. It also prevents other problems, if declaring bankruptcy is not allowed by an employer, for example. Debt management plans help save money by setting lower interest rates and fending of late and over-limit fees that may otherwise keep accumulating.

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