Dear Opening Credits,
I have a question about debt management plans. Can I put just two credit cards in such a plan or do I have to put my whole debt portfolio with them? I ask because I need help with the two major ones with a $20,000 balance. I am fine paying the others. -- Marcus
What you're describing is called "picking and choosing" in the credit counseling business, and it's highly discouraged. In a debt management plan (DMP), many of the creditors owed money agree to reduce interest rates and fees for the debtor in the program.
So why can't you include some of your accounts in the debt management plan but exclude those that don't lower their rates or that you can handle on your own? For a couple of reasons. One is the contract with the creditors, which stipulates that anyone going on a plan must include all credit card accounts with balances of over $100 -- except for one that may be used for emergencies. It's a matter of fairness. Why should one lender give rate concessions and ban charging (thus losing revenue) while their competitors continue to enjoy you as a customer?
The other reason is that bundling all accounts with balances is best for the debtor. If your intention is to get out of debt completely and quickly, it's often wise to cut yourself off from the possibility of getting into even more debt. Closing accounts and paying as much as you can until all balances are at zero can be a great way to achieve that goal. Plans are set up so you make one payment per month to the agency, which distributes the money to your creditors with the goal of you being back in the black within five years. (You can expedite that time frame with higher payments.)
If you really want to keep access to multiple cards, the debt management plan isn't for you. However, you may be able to simulate a similar plan. Here's how:
There is nothing wrong with handling your own accounts if you're committed to the process. There are some clear advantages to doing so, too. You won't have to open new cards at the end, and your credit reports won't show that you needed help from an agency.
So the choice is yours: A DIY plan that you have to actively manage, or a DMP where they do the hard work -- but you also have to adhere to their rules.
See related: How debt management plans impact credit scores