Debt Management Plans

A debt management plan (DMP) is a strategic effort to eliminate unsecured debt such as credit cards and medical bills. A program will educate you on how to successfully manage your debt. A debt management plan is NOT a loan. In a typical program, debt management companies work with creditors on your behalf to reduce your monthly payment and interest rates on your debt and waive or reduce any penalties. The parties agree on an affordable payment schedule that allows 3-to-5 years to pay off your debt.

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

A debt management plan 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.

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

Those who enroll 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 program 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 plan 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.

Step-by-Step Process for Debt Management

If you are interested in participating, it is best to go online to research the best debt management companies and find one you are comfortable using.

There are nonprofit and for-profit companies that offer DMPs. The nonprofits are considered more reliable because their credit counselors are trained and certified by the very respected National Foundation for Credit Counseling.

Before calling a company, make a list of your monthly income and expenses. Be as accurate as possible, using recent pay stubs and bank statements, along with a list all bills paid and unpaid. Have all that information available when you call the company.

Here is step-by-step description of what to expect from a good debt management company:

  • Be prepared for an interview that will touch on all areas of your income and expenses, including rent, utilities, credit card bills, medical bills and any other financial obligations.
  • During the session, the counselor will pull your credit report and verify information with you. This is a “soft pull” which means there will be no effect on your credit score.
  • The counselor should make suggestions on areas where you could decrease spending and increase income as well as offer free education material for use down the line.
  • The counselor will evaluate your position and If your cash flow situation is still a negative, the counselor could offer a debt management program as a solution.
  • If you agree to enroll in the program, the counselor works up a budget proposal and sends it to your creditors for them to approve or make a counter proposal.
  • You and the creditor have to agree on the final terms that include monthly payment, fees involved and how long the payment schedule will run before the debt is eliminated.
  • In most cases, when both sides agree to the terms the counselor will ask for your bank account information so that monthly payments come automatically from your account. The payment goes to the credit counseling agency, which then disburses money to the creditors under the agreed upon terms.
  • The agreement is sent you via email or regular mail. Once it is signed and returned (typically one day for email, 3-5 business days for regular mail), the program begins.
  • You will receive monthly statements from both the creditor and the credit counseling agency. Compare the two statements to be sure payments are credited properly.
  • If one debt is paid off before the others, your monthly payment remains the same. Any extra funds are split among the remaining creditors to pay off those debts faster.

If you have any questions about the terms or conditions, call the credit counseling agency in charge of the agreement. They are your liaison with creditors and can smooth out any issues you have.

If you suddenly run into an unexpected amount of money, you can pay off your balance early with no penalty.

Things You Should Know About Debt Management Programs:

A debt management program is one way to dig your way out of debt troubles, but there are some things that should be considered before enrolling:

  • DMPs are 3-to-5 year programs. That requires a lot of discipline and commitment. If you drop out of the program for any reason, you lose all the concessions creditors made for you on interest rate reduction and elimination of penalties for late fees, etc.
  • You will be asked to close all credit card accounts while in the program. Some agencies may allow one card for emergency use, but this can be a difficult hurdle for people.
  • Be sure to call your creditors and verify that they have accepted the terms of the debt payment plan proposed to you by a credit counseling agency.
  • There are other debt-relief options available, including doing everything in a DMP by yourself. You could also look at a debt consolidation loan; a debt settlement program and, if your circumstances are truly dire, even bankruptcy as possible solutions.

Responsibilities in a Typical Debt Management Program

A successful debt management program involves serious discussions among consumers, nonprofit credit counseling agencies and creditors to construct a plan that eliminates all debts and steers the consumer toward responsible use of credit.

Each party has a role to play in building a foundation for success.

The consumer’s role includes:

  • Be honest and accurate when providing information on income and expenses.
  • Be disciplined about making full payments, on time, every month.
  • Track your progress through statements every month.
  • Avoid new credit. There could be severe penalties for trying to open new lines of credit.
  • Take advantage of free education information provided to help in managing debt.

The credit counseling agency’s role includes:

  • Thoroughly review consumer’s financial situation and suggest possible solutions to eliminate debt.
  • Offer educational tools that help consumers understand root cause of their debt; why it’s important to budget properly budge; and how to avoid debt in the future.
  • Work with creditors to reduce interest payments and waive or reduce penalty fees.
  • Serve as liaison between consumer and creditor to arrive at affordable and acceptable monthly repayment schedule.
  • Provide monthly status reports on amount paid to each creditor and remaining balance.
  • Be available to answer questions while repayment process is taking place and follow up with consumer when program is completed to update educational tools.

The creditor’s role includes:

  • Be open to designing a repayment schedule both sides can live with.
  • Be prudent, but fair about making concessions on interest rates and penalty fees.
  • Keep accurate record of payments and provide consumer with monthly status reports.
  • When debt is fully repaid, send status update to national credit reporting agencies.

If the three parties work together responsibly, the program should eliminate all debts within 3-to-5 years.

Debt Management Plan FAQs

If I enroll in a debt management plan, can I continue to use my credit cards?

Most debt management companies require you to close credit card accounts since those are usually the cause of debt. Some companies will allow you to retain one credit card for emergency, travel or business use. The good news is that credit card companies are eager to renew a relationship with you when you complete the program.

How does a debt management program affect my credit?

Experian, one of the three major credit bureau companies in the U.S., said the impact on your score should be minimal if you and the agency making payments for you, are on-time every month. If lenders look at your full credit report while you are in a DMP, they will see that you are repaying the debt at a reduced rate and it may affect their final decision on whether to grant you a loan.

There are some variables in how a debt management plan affects credit, but the general rule is a slightly negative impact early because credit card accounts are closed, then a gradual positive impact as on-time payments are received and reported by creditors. When all debts are eliminated, there should be a generous impact on your credit score.

Can I have only the bills that are causing me problems involved in the debt management program?

No. All eligible unsecured debt must be accounted for in a debt management plan, even those bills that you typically have no problem making payments on. The credit counseling agency in charge of your debt payment plan will want a full accounting of income and expenses in order to arrive at an accurate amount available to make the monthly DMP payments so be prepared to include all eligible debts.

Can you enroll online?

Consumers can sign up online, but most go through a phone interview with a credit counselor to determine if their situation qualifies for a DMP. The phone interviews range from 20-60 minutes, depending on which debt management company you’re working with.

Will being enrolled in a debt management program stop interest from being charged on all my accounts?

Creditors usually make concessions on the interest rate in debt management plans – often dropping them from as high as 30% to somewhere close to 9% -- but it is rare for them to waive all interest charges. Interest rates are variable and the credit counseling agency will work to get you the best rates possible.

How does a debt management program compare with a debt consolidation loan?

Both are possible solutions to problems with debt. A debt management program is not a loan. It consolidates unsecured debts and tries to lower monthly payments through reductions on interest rates and penalty fees. A debt consolidation loan is actually a loan, with interest charges and monthly payments due. With a debt consolidation loan, you would have to qualify to borrow the amount needed to pay off your debt. The interest rate is normally fixed and, depending on your credit score and history, may need to be secured with collateral like a home or car. Debt consolidation loans usually run 3-5 years.

What are the fees?

The best debt management companies typically are nonprofit credit counseling agencies, who normally charge somewhere between $25 and $55 per month. There also is a set-up fee that varies by state, but the industry average is around $75.

What type of loans, debts and accounts can be included?

Unsecured debt such as credit cards and medical bills are, by far, the most common debts associated with debt management programs. Utilities, rent and cell phone services are other types of unsecured debt that could be part of a DMP. Some installment contracts, such as country club or gym memberships also could be eligible. There is no hard-and-fast rule for how far in debt you must be to get in a program, but most creditors and legitimate credit counseling agencies say your financial situation needs to be severe. In other words, you must owe more money than your income and savings can reasonably handle. Secured debts, such as a mortgage or auto loan, are not eligible for the program.

How long does a debt management program last?

Most reputable debt management companies offer 3-to-5 year programs to eliminate all debt. If the consumer comes into a windfall of cash, there is no penalty for paying off debt early.

What effect will a debt management plan have on my current interest rates?

The goal is to lower the interest rates you pay on all debt eligible for the program. Some debt – mortgages, auto loans – is not eligible so the interest rates there will not be affected.

When is a debt management program not the right option?

The convenient answer is: When your debt is so small that you can handle it yourself by doing a better job of budgeting; or when your debt is so large that there isn’t enough income to pay for basic living needs AND make a payment toward your debt. The truth is that everyone’s circumstances are so different that an interview with a credit counselor is the only way to know whether you qualify for a DMP.

What is the difference between enrolling in a DMP and filing for bankruptcy?

A DMP is an attempt to consolidate debts into one payment by reducing interest rates and reducing fees. Bankruptcy is a legal declaration that you can’t repay debts, even after all assets are liquidated. Filing for bankruptcy remains on your credit report for 10 years and can cause your credit score to drop by as much as 200 points.

Must all unsecured debts be included in a DMP?

Although most unsecured debts are included, not all unsecured debts qualify for inclusion in a debt payment plan. For example, most agencies allow one credit account to remain open for emergency or business use.

How do I enroll in a debt management plan?

Online research is the easiest place to find companies that do DMPs. It is suggested that you look for National Foundation for Credit Counseling (NFCC) approved non-profit agency. Credit counselors at NFCC approved agencies must be trained, certified and adhere to strict quality standards in developing debt payment plans.

What are the benefits of a debt management program?

The top benefit is that you are on a plan that should eliminate debts in 3-to-5 years and you will stop receiving harassing calls from debt collection agencies. Convenience is another plus. You make only one payment a month for your debt payment plan as opposed to numerous payments with numerous deadlines. You receive free educational material that should help you better understand how to manage debt. Finally, you can always call a credit counselor and receive free advice should your situation change.

Will my creditors still call me and send me statements?

No, creditors should stop calling you as soon as you start a debt payment plan and yes, they also will continue to send statements, which is important. Statements from the creditors should be matched up against statements from the credit counseling agency to make certain all payments are being applied correctly.

Is my information kept confidential when I enroll?

Reputable debt management companies will keep your information confidential, but be sure to review your organization’s privacy policies. If you find that they do share your information with anyone, there should be a place to opt out.

How will a creditor know that I joined a debt management program?

The credit counseling agency will inform all creditors of your intention to enroll and ask each one for concessions on interest rates charged and penalties applied to your account.

What if a creditor doesn’t agree to participate in a DMP?

The credit counselor should be able to advise you during the counseling session whether a creditor will participate. If, for any reason, the creditor chooses not to participate, the original terms of the debt remain intact.

What happens if I can’t handle the payments?

If circumstances change while you’re in a DMP and you can no longer make agreed upon payments, contact the agency and they should work with you to adjust payments accordingly.

What to do if your DMP company shuts down

Contact your bank and stop payments to the agency servicing your debt management program as soon as you become aware the agency has shut down. You should immediately contact the creditors involved and ask if you could continue paying them directly or would they work out another payment plan. Also, ask for a credit report and verify that previous payments you made to the DMP agency were sent to your creditors. If payments were missed, there could be some negative consequences to your credit score. Finally, you could contact a nonprofit credit counseling agency and ask them to intervene on your behalf with your creditors.

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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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