Key Takeaways

  • Credit card debt is especially burdensome for older adults, who face mounting healthcare expenses along with rising costs of living.  

  • A debt management plan can provide relief by rolling several of your credit card balances into a single, manageable monthly payment.

  • Understanding debt management plan pros and cons can help you decide if it's the right approach for you.

Older adults are carrying more debt today than ever before. The numbers are staggering: For Americans age 70+, the debt burden skyrocketed by 543% from 1999 to 2019.

Median total debt for older-adult households with debt was $31,300 in 2016—more than 2.5 times what it was in 2001.

Credit card debt is especially burdensome for seniors, who face mounting healthcare expenses along with rising costs of living. A modest credit card balance can quickly snowball due to late fees and finance charges. This may make it difficult for you to keep up with even minimum monthly payments, causing you to fall further and further behind. You may begin receiving threatening notices and phone calls from debt collection agencies. All of this can create a very stressful situation that affects every area of your life.

If you find yourself buried under a mountain of credit card bills, you have options—and a debt management plan may be an option worth exploring.

What is a debt management plan?

A debt management plan (DMP) is an arrangement that allows you to condense several of your credit card balances into a single monthly payment. The objective of a debt management plan is to meet your financial obligations by completely paying off your outstanding credit card debt.

Debt management plans are typically offered through credit counseling agencies. Credit counseling involves unbiased, one-on-one guidance from a certified counselor who specializes in credit card debt. Among other things, a credit counselor works directly with consumers to determine what type of debt relief solution best fits their needs.

How does a debt management plan work?

If you decide to go ahead with a debt management plan, your credit counselor will contact your creditors to negotiate a payment amount that you can comfortably afford each month. Under the new payment plan, you'll make one monthly payment to the plan's administrator who then distributes the money to your creditors. This arrangement typically lasts from 3 to 5 years until all the debt has been paid off.

Debt management plan requirements are usually strict. You can’t miss more than one or two payments, or you might be eliminated from the program.

What are the benefits of a debt management plan?

A debt management plan can be a powerful tool for helping you get caught up and back on track with your finances. This option can offer:

  • Financial relief: Having to make just one monthly payment can take significant pressure off your budget. It may free up additional funds to spend on life necessities or put aside for savings.
  • Stress reduction: A debt management plan is a straightforward, fixed plan that eliminates the need to juggle different payments and due dates. Plus, knowing you’re on a solid path to debt repayment can greatly reduce your financial stress and anxiety.
  • Fewer collection calls: Once your creditors agree to participate in your DMP, calls from debt collection agencies should greatly decrease or stop altogether. If debt collectors do continue to call, you can direct them to the credit counseling agency you're working with.
  • Reduced interest rates and fees: Your credit counseling agency may be able to arrange for reduced or waived finance charges and fees. This can help you save money and pay off your debt faster.
  • Shrinking account balances: If you're working with a nonprofit credit counselor, 100% of your payments will be applied toward your debt. The sight of those balances getting smaller can be very motivating.

What are the disadvantages of a debt management plan?

It’s important to understand debt management plan pros and cons before diving in head-first. While the benefits are many, there are some downsides to choosing this debt relief approach:

  • A DMP is designed for unsecured debts only, like credit cards or personal loans. If you're struggling with other types of debt such as auto loans, a debt management plan probably isn't right for you.
  • You won't be able to use credit while your plan is active. In most cases, enrolling in a debt management program will require you to close one or more credit accounts. You won't be permitted to use credit cards or open new lines of credit.
  • Your creditors may not be on board. Enrolling in a debt management plan depends on getting your creditors to agree to the terms. If some are not willing to participate, meeting your debt obligations won't be as straightforward.

How does debt relief affect your credit score?

When you enroll in a debt management program and your credit accounts are closed, your credit score may drop somewhat. However, the news is not all bad. If you stay current with your plan payments and progressively shrink your balances, your credit score should rebound over time.

Is a debt management plan right for you?

Debt management plans aren't for everyone. You might be a suitable candidate for a DMP if:

  1. You have credit card or other types of unsecured debt (e.g., medical debt).
  2. You hold more than one credit card with a balance.
  3. Your credit card debt carries high interest rates, fees, or minimum payments.
  4. You're struggling to pay your bills every month.
  5. You're just not making any progress paying down your account balances.

Find a credit counseling agency you can trust

A smart first step in getting out of debt is finding a reputable nonprofit credit counseling agency to work with. Since debt relief is big business, and there are a lot of scams out there that target older adults, it’s important to do your research.

NCOA recommends GreenPath Financial Wellness, which is a nonprofit agency rated A+ by the Better Business Bureau (BBB). You can also search for certified credit counselors online using the National Foundation for Credit Counseling (NFCC) and Financial Counseling Association of America (FCAA) websites.

When interviewing agencies, ask the company about the completion rate for their debt management programs as well as what fees they charge. While an initial credit counseling session is often free, many agencies charge a setup fee plus a monthly fee. These can range from $30 to $100 dollars per month.

Credit card debt is common among older adults, and help is available for those who need it. Although it may take a few years, a debt management plan could be your ticket to a debt-free life and a better financial future.

Want more financial management tips? Visit our Money for Older Adults resource hub.