Participating in a debt management plan is one of the most effective ways to pay off credit card debt. It's a straightforward process that allows consumers to pay off debt more quickly than they could do it on their own. Plus, they enjoy significant savings due to lower interest rates.

Those considering a debt management plan may be wondering what happens to the rest of their finances while they're on a plan. Are they at a financial standstill, or can they continue to conduct other financial business?  Many ask, can you get a loan while on a debt management plan? Let's find out.

How Do Debt Management Plans Work?

First, let's look at the basics of debt management plans. Nonprofit credit counseling agencies offer these plans to consumers who need help getting out of credit card debt. The agencies work directly with creditors, who offer lower interest rates to debt management clients. This allows clients to pay off the principal debt much more quickly, while saving money and enjoying the convenience of making a single monthly payment to the credit counseling agency, rather than multiple payments to creditors.

Which Accounts Are Affected by Debt Management Plans?

DMPs help consumers pay off unsecured debt, specifically credit card debt. While we recommend clients close and enroll all their credit cards in the plan, in some cases clients may keep a single credit card open for emergencies only.

The only accounts affected by a debt management plan are the ones enrolled in the plan. Secured debts, such as mortgages, auto loans or student loans cannot be enrolled in the plan. Neither can court-ordered child support or spousal support payments. A debt management plan also has no effect on bank accounts, like checking and savings accounts, or investment accounts, such as a 401(k).

How Does a Debt Management Plan Affect Credit?

Some clients will experience a drop in their credit score when they first enroll in the plan and close their credit cards. Additionally, some creditors will make note of a client's plan participation in the plan on their credit report — but this is a neutral notation that doesn't affect the score either way.

Clients typically notice their credit improving the longer they stay on a debt management plan. As account balances drop and are ultimately paid off, credit scores improve. Many clients on debt management plans find their credit is the best it's ever been by the time they complete the program.

Can I Apply for a Loan While on a Debt Management Plan?

Now on to the big question: can you get a loan while on a debt management plan? The short answer is maybe. Simply being on a debt management plan does not prevent someone from applying for and receiving a loan. It's really more about the state of someone's credit at the time they apply. Chances are, those who are new on the plan or have only been on it a few months probably aren't in a position to be approved for any new credit.

But the more important thing to consider is why you're on a debt management plan in the first place. You're doing it to get out of debt. Even if your credit is in decent shape, do you really want to add additional debt by taking out a new loan?

Of course, there may be an emergency that requires borrowing money for a large purchase, like a new vehicle. But before you do that, you'll want to look closely at your overall financial situation to see if there are options other than taking on new debt. If you're on a debt management plan, be sure to call and talk with a counselor before  applying for any new credit.

Find out if a debt management plan is the right debt relief solution for you. Take our free online financial review now.