Under a debt management plan a credit counseling agency undertakes to renegotiate the terms of payment with your creditors. It then sets up a repayment schedule by your agreement. You deposit funds with the credit counseling firm every month and they make the payments on your behalf.

The main intent of a debt management plan is to negotiate a lower rate of interest on your loans. a complete waive of interest is usually not possible and does not happen in most of the cases.

The counseling agency also may help you with reestablishing your credit once you have successfully completed your debt management plan. A debt management plan aims to get you out of debt in 2-5 years. If the credit counseling agency calculates that it is not going to be possible for you to pay off your debts in this duration it may recommend other options like filing for bankruptcy.

A debt management plan serves the purpose of both the creditors and the consumer. It helps the consumer repay the debt and the lenders in getting the money that is owed to them.

Further credit may not be available to you during the time that you are under a debt management plan.

Since being in a debt management plan reflects that you are facing a debt problem, it may affect your credit worthiness adversely, resulting in lowering your credit rating.

Most of the creditors report the fact to the credit bureau that a consumer is making payments under a debt management plan, this information will reflect on your credit report. different creditors have different policies regarding reporting consumers in a debt management plan. Some may view it as a positive sign that you are trying to get your debt under control, while others may not work with you in the future owing to the fact that you not making the payments on the terms agreed to previously. If you receive calls or notifications from collectors you can ask them to contact the credit counseling agency instead.

A debt management plan will strive to make you debt free in 3 to 5 years. A debt management plan can be helpful if you find that your current income does not allow you to pay off your debt according to the current terms of repayment. Taking the help of a credit counseling service to renegotiate the terms through a debt management plan could prove to be more effective than trying to renegotiate with your creditors yourself.

Many credit counseling services have existing business relationships with creditors. This makes it easier for them to communicate and work out an agreement with them on your behalf. The creditors also feel more comfortable lowering the interest rate and providing concessions when you’re dealing through professional service.

Several major lending institutions and banks do not consider being part of a debt management plan as something negative. In fact some major lenders now consider a consumer who is part of a debt management plan to be taking positive steps to reduce his debts and pay off the money that he has borrowed.

However, the final goal of a debt management plan is to help you with our debt situation and get back up on your feet so that you can start anew with more responsible credit habits.

If you have been late in making the payments before entering in to a debt management plan, this information will continue to show on your credit report in spite of being in the repayment plan.

In most cases your creditors will close down your lines of credit such as a credit card and you will not be able to use it further. Rare exception are made in case your employer needs you to travel and you need to use your credit card for that purpose.

Also, it is not possible most of the time to include certain credit accounts in the debt management plan and leave others out of it. this depends on the credit counseling agency you are working with and your credit counselor will be able to advice as to whether it will be better to include all of your credit accounts in the repayment plan or not.