debt management plan
A structured repayment program offered by credit counseling agencies where creditors agree to reduced interest rates in exchange for regular monthly payments.
Example
“Her debt management plan consolidated five credit card payments into one $500/month payment at reduced rates.”
Memory Tip
DEBT MANAGEMENT PLAN = nonprofit-managed repayment program. Creditors lower rates, you make one payment.
Why It Matters
A debt management plan can help people avoid bankruptcy and reduce the total interest paid over time. It provides a clear path to becoming debt-free while making creditors more willing to work with borrowers who might otherwise default completely.
Common Misconception
Many people mistakenly believe that entering a debt management plan will immediately fix their credit score. In reality, while it shows good faith effort to repay debts, it may initially lower your credit score because creditors report the modified payment arrangement.
In Practice
Someone with 15,000 dollars in credit card debt across multiple cards at 18 percent interest could work with a credit counselor to negotiate a plan where creditors reduce interest to 8 percent and accept monthly payments of 350 dollars. This allows them to pay off the debt in roughly 4 years instead of potentially 7-8 years at the original interest rate.
Etymology
DEBT (money owed) MANAGEMENT (organized control) PLAN (structured approach). A PLAN to MANAGE and repay DEBT.
Common Misspellings
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Related Terms
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See Also
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