Do debt management plans work?

Nonprofit credit counselors are the good guys in the debt relief industry, which is otherwise full to bursting with lies, scams and sketchy players.

Debt management plans are touted as an alternative to bankruptcy and an affordable way to pay back credit card debt.

Thanks to standing agreements that counselors have with credit card companies, the plans typically reduce the interest rates, fees and payments that borrowers are expected to make.

If borrowers make all the payments and repay the principal completely, debt management plans have much less impact on their credit scores than other types of debt relief.

Some consumer advocates were appalled when the National Foundation for Credit Counseling named Bostick and her husband, Jim, as the agency's 2012 "Clients of the Year" because of the couple's age and the fact that he had Alzheimer's disease.

—They aren't designed to tackle many other types of debt, such as mortgages, car loans, student loans and most medical bills.

Of the people who enrolled in its debt management plans in 2010, 42 percent had completed repayment by the end of 2014 and 12 percent were still making payments, says Bruce McClary, the spokesman for NFCC, the largest and oldest nonprofit credit counselor.

By contrast, a Chapter 7 liquidation, which erases credit card debt and most other consumer debt, typically takes four months and costs roughly $1,500, depending on the area.

Bankruptcy stops collection actions such as lawsuits and wage garnishments, and battered credit scores typically rise after a filing.

Creditors can resume collection efforts, and borrowers also have flushed thousands of dollars down the drain and might not have enough money left to seek legal help or file for bankruptcy.