Debt Management Plans

A Debt Management Plan (DMP) is a personalized payment agreement between a creditor and a debtor, and can be utilized to help take control of personal debt. A DMP is part of the package of debt consolidation plans that are designed to help people regain control of their finances while reducing unsecured debts.

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What is a Debt Management Plan? How can it help?

A DMP is part of the package of debt consolidation plans that are designed to help people regain control of their finances while reducing unsecured debts. An unsecured debt is one that is not backed by collateral, and includes credit cards, medical bills and student loans.

Participating in a debt management plan is one of several ways you can take control of your debt. A debt management plan reduces the number of payments you make each month and can save you money in interest and fees.

Those who enroll in a DMP make monthly deposits with a credit counseling organization, which then is used to pay the debts according to a predetermined payment schedule developed by the counselor and creditors. Your monthly payment is tailored to what the customer can afford, and you know before agreeing to take part in the DMP what that monthly amount is. An analysis of household income vs. expenditures determines the monthly payment.

Advantages of a Debt Management Plan

  • It will help you stay more organized and punctual with your bills and payments.
  • It creates a realistic monthly budget with a financial goal.
  • Making regular and timely payments can improve your credit report and credit score over time.
  • Creditors or collectors have incentive to stop calling.

Considering a Debt Management Plan

Before you sign up for a debt management plan, choose a credit counseling organization to help you with the process. Many of these organizations are nonprofit and may offer counseling sessions free of charge, while others charge fees.

The Federal Trade Commission (FTC) recommends finding a reputable credit counseling organization that uses certified counselors trained in consumer credit and debt management. They can help manage debt as well as develop a practical budget. offers a team of debt relief professionals who can help as well.

It’s also vital to check with the local consumer protection agency, the Better Business Bureau and the state Attorney General’s office to ensure there haven’t been any consumer complaints and the organization is licensed.

Beware of hidden fees, scams and fraudulent organizations. Look up a company’s record with the Better Business Bureau to check its track record. Once you find a credit counselor with whom you’re comfortable, he or she will review your finances and help you create a budget, as well as help you decide whether a debt management plan is right for you.

Some points to remember when enrolling in a DMP:

  • It can take 36 to 60 months to repay debts using a DMP.
  • The organization may restrict the consumer from using or applying for additional credit while enrolled in the plan.
  • If DMP payments are late, the consumer may lose progress on decreasing the debt and lowered interest rate or fees.
  • You may qualify for lower interest rates on your debt and a lower monthly payment.

Signing up for a Debt Management Plan

If you decide a debt management is right for you, your credit counselor can help you enroll. He or she will work with your creditors to negotiate interest rates and to come up with a payment schedule, which you will review and approve before beginning the plan.

Once it is determined how much money is left after basic living costs like rent/mortgage, utility bills, secured loans and living expenses are paid, the remaining amount can be divided among creditors.

Then, you’ll make a deposit monthly to your credit counseling organization. In turn, the organization will distribute the money to your creditors according to the agreed-upon payment schedule.

Participating in a debt management plan will cost you very little. After counseling sessions, you should only pay a small one-time set-up fee and a small monthly maintenance fee. Avoid any credit counseling organization that requires an application fee, membership fee, upfront fee or per-creditor fee.

After you enroll in a plan, follow these guidelines to help ensure that the program is working for you:

  • Make note of which of your debts and bills will be paid via the DMP and which ones you still must pay on your own each month.
  • Pay the counseling agency on time each month.
  • Review your monthly statements to ensure that the counseling agency is paying your bills on time and according to plan.
  • A debt management plan typically takes care of only unsecured debts.

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Avoiding DMP Pitfalls

It’s important to investigate the debt management company prior to agreeing to terms or signing any paperwork. Search for one that is accredited.

Don’t be tempted by “credit repair” companies that promise to fix credit histories for a fee. All consumers have the right to have inaccurate information removed from a credit report without the need for an outside organization.

Most importantly, when you determine which debt management plan is most efficient, find out what services the business provides and all costs. Never rely on verbal promises. Get everything in writing, and read contracts carefully.

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Bill Fay
Staff Writer

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at


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