Key takeaways
- In a debt management plan, you make one monthly payment to a credit counseling agency, and it pays your creditors.
- Counselors often arrange lower interest rates or waived fees with your creditors, but that isn’t guaranteed.
- You repay the full balance. Plans often take 48 months or more.
- It works for unsecured debts like credit cards and medical bills, not mortgages or car loans.
- Choose a counselor who reviews your full situation first and never charges before doing anything.
If you’re juggling several credit card payments and the interest keeps you from making progress, a debt management plan, often called a DMP, may help. It’s offered by credit counseling organizations, most of which are nonprofits. Unlike debt settlement, you repay what you owe. The goal is to make the payments manageable and the interest lower.
How a debt management plan works
- You meet with a credit counselor. The counselor reviews your income, expenses and debts. This first session is often free.
- The counselor suggests options. A DMP is one of them, but a good counselor will also talk about budgeting and other paths.
- The agency contacts your creditors. It asks them to accept the plan, often with lower interest rates or waived fees.
- You make one monthly payment to the counseling agency.
- The agency pays your creditors each month, according to a schedule agreed with them.
The CFPB describes it simply: you make a single payment to the credit counseling organization, and it makes monthly payments to each of your creditors.
What debts it covers
DMPs are for unsecured debts: credit cards, medical bills and some personal loans. According to the FTC, they don’t cover secured debts like a mortgage or car loan.
How long it takes
The FTC says a successful plan requires regular, on-time payments and can take 48 months or more to complete. Missing payments can cause creditors to drop the concessions they agreed to.
What it costs
Credit counseling organizations may charge fees, usually a setup fee and a monthly fee. Fees vary by agency and by state. The CFPB recommends getting a specific price quote in writing, and warns against organizations that won’t help you because you can’t afford to pay. Ask whether fees can be reduced or waived if money is tight.
Who it fits
- You have steady income and can afford one monthly payment, but not all your current minimums at their current interest rates.
- Most of your debt is on credit cards or other unsecured accounts.
- You’re willing to stop using credit cards while you’re in the plan.
Who it may not fit
- Your income can’t cover even a reduced payment. A counselor may suggest talking to a bankruptcy attorney.
- Most of your debt is secured, like a mortgage or car loan.
- You need to keep using your credit cards.
How it affects your credit
You keep paying what you owe, on time, so a DMP is usually easier on your credit than options that involve missed payments. Creditors may close the cards in the plan, which can raise your credit utilization for a while. Some creditors may note on your report that you’re in a plan. Our guide on how debt relief affects your credit score compares the options.
How to choose a credit counselor
Interview more than one. The FTC says the best counselors won’t promise to fix all your problems and won’t charge you before they do anything. Ask:
- What services do you offer besides a debt management plan?
- What are your fees, and can I have them in writing?
- Are your counselors certified?
- How are your employees paid? Do they earn more if I sign up for a plan?
- What happens if I can’t make a monthly payment?
Be careful with any organization that pushes a DMP as your only option before it has spent real time looking at your finances. You can find a nonprofit counselor through the NFCC. Our list of signs of a debt relief scam covers other warning signs.
Debt management plan vs. other options
| Debt management plan | Debt consolidation loan | Debt settlement | |
|---|---|---|---|
| You repay | The full balance | The full balance | Less than the full balance on settled debts, plus fees |
| Interest | Often reduced by creditors | Depends on the new loan’s rate | Payments usually stop while you save |
| Credit impact | Usually mild with on-time payments | Small dip, then can help | Usually serious |
| Needs good credit? | No | Usually | No |
For a closer look at the last two, see debt settlement vs. debt consolidation.
The bottom line
A debt management plan is a structured way to repay what you owe at better terms, with a nonprofit handling the payments. It takes years and discipline, but it avoids the credit damage and tax questions that come with settlement. Talking to a nonprofit counselor is free or low-cost, so it’s worth doing before you decide anything.
Sources: CFPB: what is credit counseling · FTC: how to get out of debt · NFCC