Debt can weigh on more than your finances. For many people, it also affects day-to-day well-being. In fact, more than 2 in 5 U.S. adults (43%) say money negatively impacts their mental health at least occasionally. This can lead to stress, anxiety, trouble sleeping, and other emotional strain.1
Figuring out how to manage debt is an important priority, but it can feel overwhelming at times. You are not alone in this situation, and there are ways to move forward. A debt management plan can help create a clear path to address what you owe.
If you are currently dealing with debt, here are a few things to consider.
What Is a Debt Management Plan?
A debt management plan is a structured way to pay down debt over time, often within three to five years.
How It Works
You can work with a credit counseling agency to set up a plan. These agencies may:
- Provide guidance on managing your money
- Contact lenders, such as credit card companies
- Negotiate lower interest rates or adjusted payment terms
- Combine multiple debts into one monthly payment
What to Consider
You may have to pay a fee to work with these agencies. If you decide to go this route, it's wise to make sure the agency is accredited by the National Foundation for Credit Counseling.2 It's also important to note that if you don't go through with the debt management plan, the agency you're working with will notify your creditors that the plan is no longer active. As a result, all of those debts will likely be due immediately or sent to collections.
Creating Your Own Plan
You can also decide to create a plan on your own. It may just take a bit more planning on your part. Forming a plan to repay lenders can help you stay organized while meeting your current financial obligations and reducing your debt.
When Should I Consider a Debt Management Plan?
The right time depends on your situation. In some cases, working with an agency on a debt management plan may be an option before considering bankruptcy.
You can also try to create your own plan first. If your debt feels overwhelming and you are struggling to keep up with payments and daily expenses, a formal plan may be worth considering. Reviewing your options early can help you stay on track.
Signs It May Be Time to Consider a Plan
You may want to consider a plan if you are experiencing any of the following:
- You have trouble making monthly payments
- Your balances continue to grow
- You rely on credit for everyday expenses
- You feel behind and unsure how to catch up
What to Keep in Mind
Before moving forward, it helps to understand how these plans typically work:
| Consideration | What It Means |
|---|---|
| Limited eligibility | Plans are often used for certain types of debt |
| Creditor approval | Not all creditors may agree to new terms |
| Spending habits | A plan will not address ongoing overspending |
A debt management plan can help organize payments, but it works best when paired with changes to your spending habits.
Will Debt Management Impact My Credit Score?
If you work with an agency on debt management, it will be reported to the credit bureaus and may affect your credit score, especially if your credit cards are closed. However, if you stay consistent with your plan, including making payments on time and lowering your total debt, your credit score could improve over time.
A debt management plan may show lenders that you are taking steps to handle your debt, and it can also lower what you owe, which credit bureaus may view in a positive way.
Considerations Around How to Manage Debt Independently
If you want to create and follow your own debt plan, it is possible. Here are a few strategies that can help you get started:
- Look at your spending: When you first think about a debt management plan, take a month or two to review your income and expenses. Creating a budget can help. You can also see where you may cut back and how much you can put toward debt each month.
- Get a clear picture of your current debts: Gather details on everything you owe, including loans, credit cards, and medical bills. Include the total balance, interest rates, minimum monthly payments, and each lender’s contact information.
- Contact the companies where you owe money: You can call and ask for a lower interest rate or try to negotiate a repayment plan. Many companies are more open to this than you might expect. If this feels uncomfortable, write out a script and keep notes nearby to guide the conversation.
- Map out a plan for reducing your debt: One option is to focus on the debt with the highest interest rate first. Another option is to start with the smallest balance. Both methods can work. Paying off high-interest debt first may save money over time. Starting with smaller balances can help you see progress sooner.
Know what you owe and look for ways to adjust your repayment plan.
4 Practices for Managing Your Debt
No matter which approach you choose, staying consistent matters. These four actions can help improve your situation:
- Make a payment toward your debt every month: Even if you pay the minimum, consistent payments can make a difference. A record of on-time payments can also support your credit score.
- Consider automating your monthly payments: Once you know how much to pay each month, you can set up automatic payments. This can help you avoid missing due dates.
- Track your progress and celebrate milestones: Paying off debt takes time, and it is normal to feel discouraged at times. Keeping a spreadsheet or tracker can show how far you have come and help you stay motivated.
- Use free resources for debt management: You can request a free credit report at AnnualCreditReport.com and monitor your score over time.3 Many nonprofit organizations also offer free consultations and educational tools.
Final Thoughts
If you want to take control of your debt, you can start at any time. Creating a plan now can help you reduce what you owe, improve your credit, and build savings for retirement. If you want more personalized guidance, consider reaching out to a financial professional who can help you build a repayment strategy that fits your situation.
Sources
- Survey: 43% of Americans say money is negatively impacting their mental health. https://www.bankrate.com/banking/money-and-mental-health-survey/.
- National Foundation for Credit Counseling. https://www.nfcc.org/.
- AnnualCreditReport.com. https://www.annualcreditreport.com/index.action.
