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What Is a Debt Management Plan?

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In a Nutshell

A debt management plan allows you to combine your debts and make one monthly payment with a lower interest rate. It's set up by a credit counselor and usually takes 3-5 years to complete. Only certain kinds of debt, such as credit card debt, can be included in a DMP. If you have a lot of debt that's secured by collateral (like a house or car loan), a DMP may not be the best option. But you can look into other debt relief options including filing Chapter 13 bankruptcy.

Written by the Upsolve TeamLegally reviewed by Attorney Paige Hooper
Updated March 29, 2024

If you’re struggling with debt, it can feel like there’s no way out. But there are a lot of options for debt relief. This article describes one possible option: a debt management plan — also known as a DMP. If you opt for a debt management plan, you’ll work with a credit counseling agency. A credit counselor will negotiate with your creditors to consolidate your debts into a repayment plan. Your credit counselor may also be able to negotiate lower interest rates for your debt, which saves you money in the long run. 

Read on to learn more about how debt management plans work and whether a DMP is the right option to help you improve your financial situation and become debt-free.

Start With Credit Counseling

Credit counseling is a great place to start on your debt-relief journey. You can schedule a free counseling session with an NFCC-certified credit counselor at a nonprofit credit counseling agency to learn about the pros and cons of debt management plans. They can also tell you about other options like debt consolidation, bankruptcy, and debt settlement. Credit counselors usually also offer general financial counseling to help with money management and other personal finance strategies.

Most credit counseling agencies also have a debt management program. So, if you choose to use a DMP to manage your debt, you may be able to have the same agency administer the plan.

How Debt Management Works

When you sign up for a debt management program, the credit counseling agency will reach out to your creditors to negotiate a repayment plan that works for you. Often, they’ll be able to negotiate lower interest rates as well. This is especially helpful if you have high-interest credit card debt. It decreases the amount you have to pay in the long run, and it results in a lower monthly payment.

A DMP doesn’t reduce your debt balance(s). Instead, the goal is to make it easier to pay off those balances, usually by lowering your interest rate. This allows you to pay over a longer time, and reduces the number of payments and deadlines you need to remember.

You’ll make one monthly payment to your debt management plan administrator. The plan administrator then passes those funds along to your creditors based on the new agreement. This means you won’t have to worry about juggling due dates and keeping up with minimum payments on multiple accounts. 

As long as you’re current on your DMP payments, you won’t have to worry about late fees, collection calls, or most of the other stress that overwhelming debt can bring into your life.

How Long Does the Plan Last?

There’s no standard plan length for debt management plans. Each plan is tailored to the participant’s specific debts and income. According to the National Foundation for Credit Counseling (NFCC), debt management plans typically take 3-5 years.

How Much Does It Cost?

If you speak with a nonprofit credit counselor, your initial session will be free. But you can expect to pay a setup fee and a small monthly fee for the debt management program services. Fees vary depending on the agency you use and the amount of total debt included in your DMP. Don’t worry, though. A reputable agency will always tell you exactly what you can expect to pay in fees before they do any work. 

What Debts Can Be Included in a Debt Management Plan?

Like most debt solutions, debt management plans aren’t right for everyone. One important limitation is that you can only include unsecured debts in a debt management plan. You can’t include secured debt in your plan. 

As a reminder:

  • Unsecured debts are loans and other bills that aren’t tied to any property. Examples include credit card debt, payday loans, and debts with collection agencies.

  • Secured debts are backed by collateral. Car and home loans are common secured debts.

It’s also important to know that not all unsecured debts can be included in a DMP. For example, student loans generally can’t be included. 

Each creditor must agree to the DMP and the new terms. Often, major credit card companies, lenders, and debt collectors already have relationships with agencies administering DMPs. So the credit counseling agency may know in advance whether the creditor is likely to agree. With other types of debt, such as medical bills and payday loans, the creditor may or may not agree to work with the agency.

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How Is Debt Management Different From Other Debt Relief Options?

Debt settlement, debt management, and debt consolidation are three different debt relief options. Given how similar their names sound, it’s easy to get confused about what each one offers. Here’s a quick rundown of how debt management plans compare to debt consolidation and debt settlement.

Debt Consolidation vs. Debt Management Plan

Debt management plans are a type of debt consolidation. But when people talk about debt consolidation, they usually mean a debt consolidation loan. Two common types of debt consolidation loans include:

  • Credit card balance transfer: Doing a balance transfer allows you to move and combine several high-interest credit card balances to one lower-interest card. Many cards designed for this offer an introductory period with low or no interest. 

  • Personal loan: This could be a secured or unsecured loan that serves as a debt consolidation loan. Basically, you’d take out a loan, use the funds to pay off other debts, then make one payment on the personal loan. To get the most out of this, you’d want to get a loan that has a lower interest rate than the debts you’re consolidating.

Like a DMP, a debt consolidation loan rolls multiple accounts into a single monthly payment. Both options ideally allow you to lower your monthly payments and save money by reducing your interest rate. One big difference between a debt management plan and a debt consolidation loan is that a DMP isn’t a loan, so it’s easier to qualify for a DMP. That’s good news if you have a few dings on your credit report. You also don’t have to risk your home or other property by using it as collateral for a loan. 

Debt Settlement vs. Debt Management Plan

Debt management plans are designed to help you pay off your debts in full with a monthly payment you can afford. By contrast, debt settlement is a strategy to pay back less than the full amount you owe on a debt. Usually, you agree to pay a reduced balance in a lump-sum payment. 

In exchange for the payment, the creditor forgives the remaining amount. You can negotiate directly with your creditors or hire a debt settlement company. Of course that sounds great, and there are some upsides to settling your debt, but there are also serious drawbacks

If you work with a debt settlement company, you’ll send the company monthly payments that are stored in an account. The goal is to build up a settlement fund so the settlement company can offer your creditor(s) a lump-sum payment to settle the debt. The debt settlement company won’t reach out to a creditor until you’ve saved up enough money to make a lump-sum payment.

With debt settlement, you may end up paying as little as half of what you owe, but the creditor won’t get any payments while you’re saving up to make an offer. In fact, not paying on the account is part of the strategy to get the creditor to accept a debt settlement offer. 

But while you’re building up the settlement fund and not making payments, the creditor will likely report those missed payments to the credit bureau. This can really hurt your credit score. They may also turn your debt over to a collection agency or even sue you. Generally, debt settlement works best if you already have funds available to make lump-sum offers to your creditors.

How Does a DMP Affect Your Credit Score?

A debt management plan may temporarily lower your credit score. That happens for two reasons. 

  1. Your credit utilization ratio increases. Your credit utilization ratio is how much of your available credit you’re using at a given time. It’s expressed as a percentage. This will likely go up when you start a DMP because most credit card companies close accounts that are included in the plan. Once these credit card accounts are closed, you have less credit available to use. Your credit utilization ratio is the second biggest factor affecting your credit score.

  2. The average age of your credit accounts decreases. Having a long history with different creditors helps your credit score. If you close accounts, your average credit account age may decrease, which can decrease your score as well. This is the third most important factor when calculating your credit score.

Though these two factors can cause a dip in your credit score, remember that the most important factor affecting your credit score is your payment history. So if you’re hesitant to enter into a DMP because it might hurt your credit, but you’re not able to make all your current payments on time, that can potentially do more damage. 

What will happen to your credit score if you enter a DMP depends on what your current credit looks like. The good news is that if you keep up your DMP payments and handle any other credit responsibly, you’ll see your score start to climb again.

How Do DMPs Affect Future Access to Credit?

Some people are concerned that participating in a DMP will affect their future access to credit. First, remember that the goal of the DMP is to help you get out of debt. So adding new debts defeats the purpose of the plan and is best avoided until you’re back on solid financial footing.

That said, emergencies happen. Many people in DMPs are able to take out loans for necessities, such as secured auto loans. The further you are in your plan and the better your payment record, the more likely you’ll be able to finance a car or home. Your DMP administrator can work with you to provide proof of plan payments and other information the creditor may need.

Let’s Summarize…

The first step toward regaining control of your finances is to understand your options. An accredited credit counseling agency can be a powerful resource for people looking for the best type of debt relief for them. One popular debt relief option is a debt management plan. Credit counselors set up and administer DMPs. They also try to negotiate lower interest rates with your unsecured creditors participating in the plan. As a result, you’ll have only one monthly payment that should be more affordable than your previous debts combined. 

DMPs usually take three to five years to complete. Only certain kinds of unsecured debt like credit card debt can be included in the plan. If you have a lot of secured debt, you’ll want to look at other options, including Chapter 13 bankruptcy.

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Paige Hooper


Paige Hooper is a seasoned consumer bankruptcy attorney with 15 years of experience successfully representing debtors in Chapter 7, Chapter 11 and Chapter 13 cases. Paige began practicing bankruptcy law in 2006 and started her own solo, multi-state bankruptcy practice in 2012. Gi... read more about Attorney Paige Hooper

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