Is a debt management plan a loan?

A Debt Management Plan Is Not a Loan#

A debt management plan consolidates unsecured debts into one monthly payment administered by the counseling agency. It is not a loan and does not involve borrowing new money. With Cambridge Credit Counseling, you make one monthly payment to Cambridge, and Cambridge sends payments to each of the creditors included on your plan.

How a Debt Management Plan Works#

To find out whether you qualify for a debt management plan with Cambridge Credit Counseling, you take part in a personalized, one-on-one debt analysis with a nationally certified credit counselor. If you enroll, you receive a free financial assessment and a payment plan with a pay date of your choosing. You will make one monthly payment to Cambridge Credit Counseling, and we will send your monthly payments to your creditors. You will continue to receive your typical statements and also have access to a client portal. Our typical client makes just one, simple payment to Cambridge, which we distribute to the creditors they’ve enrolled. Because their creditors granted interest rate reductions, that client’s monthly payment is lower, which allows them to pay off their accounts in a much shorter time frame, without settling their debts or taking out additional loans. A credit counseling session with Cambridge Credit Counseling creates no obligation to enroll in a debt management plan.

How This Differs From a Consolidation Loan#

A consolidation loan works differently from a debt management plan. For example, once federal student loans are combined into a Direct Consolidation Loan, the consolidation cannot be reversed, and the loans that were consolidated are considered paid off and no longer exist. Consolidating a defaulted federal loan also requires either three consecutive monthly payments first or agreeing to an income-driven repayment plan. A debt management plan through Cambridge Credit Counseling involves none of these loan mechanics, because it is not a loan at all.

No New Borrowing to Qualify#

Because a debt management plan does not involve borrowing new money, enrolling with Cambridge Credit Counseling does not require a loan application. Instead, qualification is based on a one-on-one debt analysis with a certified counselor, not on a credit approval process the way a loan would be.

What You Should Know Before You Enroll#

Cambridge Credit Counseling wants you to understand that establishing a debt management plan may adversely affect your credit, though the effect may be temporary as you remain committed to making monthly payments through your Debt Management Plan. Nonpayment of debt may lead creditors to increase finance and other charges or undertake collection activity, including litigation. This is different from the terms of a loan, but it is still an important point to understand before enrolling.

What To Do Next#

If you want to understand your options before deciding on anything, you can start with a free financial assessment and a personalized, one-on-one debt analysis from a nationally certified credit counselor at Cambridge Credit Counseling. There is never any obligation to enroll in a debt management plan after that session.