How Does a Debt Management Program Work

Once you have completed your Credit Counseling Session, and both you and your counselor agree that a Debt Management Program would be the best option, you can then begin the process of getting out of debt.

Below is the Process or Steps in a Debt Management Program:

Step 1 – Filing out the paperwork

The initial phase in any debt management plan is to fill out the paperwork that is sent to you by the credit counseling agency of your choosing. You must review the paperwork carefully, sign it, and send it back in a timely manner. If you have any questions about the paperwork make sure you call the counselor to find out the answer before you send it back. Along with the paperwork, it’s a good idea to send in copies of recent credit card statements and bills so the agency has the most up-to-date information about all of your accounts. If you don’t have these a credit report may need to be pulled to find out this information.

Within the paperwork provided you will see an Agreement that should be reviewed carefully because this will outline the terms of your Debt Management Program. The Agreement should contain information about your right to cancel at any time (this is a voluntary arrangement), any associated fees, the length of your program to payback all of your debt (60 months or less), the agency’s role, your responsibilities, the agency’s responsibilities, and the mutual arrangement between you, the agency, and your creditors. If there is a co-applicant joining the same program then that person must also sign everything. A credit counseling session usually takes around an hour to complete.

Step 2 – Sending out proposals to the Creditors

After the agency has received all of the signed paperwork back, they will prepare proposals to send out to all of the creditors. A proposal is a plan or suggestion between you and your creditors to reduce your payments, lower your interest rates, and possibly waive associated fees. This proposal will “propose” new payment terms to your creditors so that it’s something you can afford to pay every month. The creditor has the right to refuse any proposal sent to them.

One reason a proposal might be rejected is that the new payment is not sufficient enough. Sometimes the current balance on an account will be different from when you were first counseled. In that case, the creditor is probably looking for a slightly higher monthly payment and they may reject that first proposal. Another reason a creditor might reject a proposal is if the wrong account number is listed, so it’s important to give your counselor the full and correct account numbers for all of your debts.

There is no negotiating done with the creditors. They have their own set of guidelines of what they will and will not accept. A credit counseling agency cannot “negotiate” a lower monthly payment or lower interest rate. A creditor must approve the proposal to have that debt placed on the Debt Management Program. Only after the proposal is approved will you be granted the concessions such as a lower monthly payment, lower interest rate, and waiving of late fees and over-limit fees. Most creditors will lower the interest rate immediately upon acceptance of a proposal. Others may wait for two or three consecutive program payments to post on your account before lowering the interest rate. That is up to each creditor’s policies and procedures.

Step 3 – Setting up your payment

Once the proposals have been accepted and approved, you will have to decide on the form of payment you will be sending to the credit counseling agency each month. Forms of payment include: ACH (Automated Clearing House), Money Order, or Certified Check. We do not accept personal checks or Western Union payments. Each credit counseling agency has different guidelines on the forms of payment they will accept. Most people choose ACH because it’s the most convenient and the payment will be automatically withdrawn from their checking account each month by their due date.

You will also know your Due Date by this point, so you’ll know when your money needs to be in at the agency so that they can disburse it to your creditors on time. If you use ACH your monthly payment will be automatically deducted from your checking account. If you use any other methods such as a money order or a certified check, you will be responsible for mailing in or dropping off your payment by the agreed upon Due Date each month. It’s important that you always make your payment by this date or else you run the risk of falling behind on your program.

Once the agency receives your monthly payment they will need to hold the funds in a Trust Account until it clears the bank. This clearing process could take up to 7 business days. When the funds do clear, the agency will disburse the agreed upon payments to all of the creditors either by mail or electronically, depending on the creditor. It’s important to note that you will be required to continue to send payments directly to all of your creditors, up AND until you make your first payment to the agency.

Step 4 – Monthly cycle and paying off your debts

When you begin making payments to the agency, you’ll be relieved at how nice it is to just send out one monthly payment to one place. It’s also important to understand that your monthly payment doesn’t change or decrease as you pay off your accounts. It will always stay the same amount each month. When an account is paid off, that amount will go to another creditor on the program, until all debts are paid in full. This will help to get all creditors paid off much faster, save you money, and get you out of debt as quickly as possible. A Debt Management Program must be completed within 60 months or less for it to be beneficial and work properly.

If you should gain extra income while on the program or have a windfall of money from things like a tax refund, a gift from family or friends, an inheritance, etc. then you can always send in that extra money to the agency to pay down your debts even faster. There is no penalty for paying off a debt as quickly as you can. In fact, it is encouraged that you apply extra payments when you can and as often as you can.

You will still receive monthly creditor statements in the mail from all of your creditors. The creditors do not send these statements to your credit counseling agency. Your agency will most likely ask that you copy these statements and send the copies to the agency on a quarterly basis (every 3 months or so). The agency will need to review these statements to make sure that the payments are being applied correctly. They will also make sure the creditor is giving the agreed upon concessions such as reduced interest rate and lowered or waived fees.

You will also receive a monthly statement from your credit counseling agency. This will show all of your creditors that are on the program, the amounts that they were each paid that month, the estimated balance remaining for each account, and any associated service fees. It should also tell you when your next payment is due by. If you do not receive a monthly statement from your agency, make sure you ask for one to be sent to you. This is how you will know that creditors are being paid and when they are being paid. Be diligent and monitor your Debt Management Program closely.

Step 5 – Finished with the program

Making your final payment is unbelievably awesome! You did it! Congratulations! Most agencies will ask that you verify a zero balance on all of your creditor’s monthly statements after your last payment has been applied. This is to ensure each account balance is reading zero and that the creditor didn’t charge you any extra fees or calculate the interest incorrectly. It will be up to you to make sure every account has a zero balance by checking your creditor statements and possibly sending copies to your agency for verification purposes. Other than that, you are done with the program.


Now that you are debt-free, you can work on staying out of debt and living a debt-free life from now on. Hopefully, you’ve learned some valuable lessons and important information that you will take with you and apply to your everyday life. Use free tools, videos, calculators, budget worksheets, and how-to guides that are on the Internet to help you manage your finances and stay on the right financial track. Your financial future just got a lot brighter!