Debt management programs can be your way out of debt. Experian reported that 340 million Americans carry some form of debt. By the end of 2023, the average amount of credit card debt was $6,365 and the numbers keep going up.

Debt management plans help you manage your money, reduce your monthly payments, and find a way to pay off your debts. The catch is they can take several years to complete.

If you’re paying bills every month and not making a dent in your debt, read on and see if a debt management program is the answer for you.

How do debt management plans work?

Debt management plans (DMPs) are structured repayment plans designed to help you pay off your debts. You work with a nonprofit credit counseling agency to create a payment schedule. The credit counselors negotiate with your creditors to reduce interest rates, lower monthly payments, and waive late fees. You then make one monthly payment to the counseling agency instead of to your creditors. The agency will pay your creditors according to the agreed upon payment schedule.

A debt management plan is essentially when you roll all your unsecured debts into one fixed monthly payment without taking out a consolidation loan. The lower monthly payment is based on your budget to be sure you can afford it. This approach not only simplifies the repayment process but reduces the total financial burden. Stick with the plan and you’ll pay off your debts in 3 to 5 years.

A big issue for some is you have to go on a credit diet. This means no credit cards. You will likely have to close your credit card accounts and will not be able to open new ones until you’ve completed the DMP. Some DMPs let you keep one card for emergencies or business purposes. Other than that, no more credit until your dues are paid off.

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How can a DMP help?

Debt management plan examples often highlight the benefits of a lower interest rate and a consolidated repayment plan. For example, say you have $20,000 in outstanding credit card balances spread across four cards, with interest rates ranging from 18% to 24%. Your minimum payments are $800 per month. Under a DMP, these rates may be reduced to 8% lowering your monthly payment to $500. This can have a huge effect on your finances.

The best debt management companies not only simplify your payments but also help you avoid indebtedness in the future. Certified credit counselors will help you create a realistic budget, work with you to reduce your expenses, and teach you how to better manage your money.

Types of debt management plans

There are type main types of debt management plan companies, Nonprofit and For-Profit. Both tend to offer the same services but their goals and monthly fees differ.


Nonprofit credit counseling agencies tend to be more reputable. Their goal is to help you pay outstanding balances and they work with your best interest in mind. You will likely have to pay a monthly maintenance fee, but the amount will depend on your financial situation. A key advantage of nonprofit DMPs is that they tend to focus on financial education and counseling, helping you develop better money management skills alongside paying off the money you owe.

For Profit

For-profit credit counseling agencies operate as businesses, meaning their monthly maintenance fee will be higher. These companies provide the same services but might push you to accept a deal that’s good for them but may not be best for you. The main draw of for-profit agencies are the more personalized service options and aggressive negotiation on your behalf.

How to choose a debt management program

It’s essential to conduct a thorough debt management program review. Find out the average monthly fee, success rate, and the transparency of its services. Always verify the company’s legitimacy, there are plenty of scams.

Look for credit counseling agencies accredited by a recognized body, such as the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). The agency should have certified credit counselors. Read reviews on Better Business Bureau and Consumer Affairs so you can also see customer testimonials and how they handle complaints. Always do your research and make an informed decision.

How does it affect credit score

improve credit score

DMPs can both hurt and improve your credit. Initially, enrolling in one may lead to a slight dip in your score. This initial decrease is primarily due to creditors closing or suspending accounts to prevent further borrowing. When you close an account it reduces the average age of credit and how much available credit you have, both factors in determining scores. So when you have less available credit to work with, your credit utilization ratio increases and your score goes down.

Your credit issuer or agency may also report that you’re using a DMP which will result in a negative mark on your credit report. Once you’ve completed the DMP successfully this mark will fall away and your score can go up by 100 points or more.

A DPM can also positively affect your credit score while you’re in it. As part of the plan, you’ll be making consistent, on-time payments. A positive payment history is the most important credit scoring factor. Moreover, reducing the total amount of money you owe improves your debt-to-income ratio, another critical factor in calculating scores. It’s important to note that the benefits of a DMP on your credit score are often realized gradually as you pay off your balances.

While there may be a short-term dip in your credit score when entering a DMP, the long-term effect tends to be positive.

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

Enrolling in a DPM and filing for bankruptcy are two vastly different approaches to addressing overwhelming debt. A debt management plan is a proactive, less drastic measure that involves working with a credit counseling agency to consolidate payments, lower monthly bills, and make them more manageable. This approach does not erase the debts but makes them easier to pay off and will not significantly harm your credit score in the long term.

On the other hand, filing for bankruptcy is a legal process that can lead to the discharge of certain debts, essentially offering a “fresh start.” With Chapter 7 bankruptcy you have to liquidate all your non-essential assets. Chapter 13 lets you keep your assets but you must stick to the approved payment plan, which can take 3 to 5 years. The legal proceeding comes with severe consequences. It will remain on your credit report for up to 10 years making it difficult to obtain credit, buy a car, or even secure employment. Bankruptcy is a last resort after you’ve tried all other debt relief options.

Owe over $10,000 and considering bankruptcy?

Find out if bankruptcy is the right choice for you.

Who is it best for

A DMP with a nonprofit credit counseling agency is an effective way to pay outstanding balances. If you’re struggling financially, it is certainly a strategy to consider. Like all programs though, it is not for everyone.

The ideal candidate

Debt management plans are not a one-size-fits-all solution. They are best if you have high interest credit card or other unsecured debt like personal loans or medical bills. For a DMP to work, you must have a steady enough income to handle fixed monthly payments and a monthly fee.

The less than ideal candidate

Debt management plans are not the best fit if you have secured debt. Mortgages and auto loans are not eligible as they are secured by your house and car.

DMPs are also not a good option if the amount you owe is so small that you can fix it with better budgeting. On the other hand, if your deficit is so large and your income too small to cover basic living expenses, then a DMP is not for you. To enroll in a DMP you must be able to make monthly payments. In this circumstance, you may want to consider a debt consolidation loan, debt settlement, or getting a second job. There are plenty of other options out there.

Everyone’s circumstances are different so there is no best debt management plan for everyone. If you’re interested, talk with a nonprofit credit counseling agency and see if you qualify.

How do I enroll in a debt management plan?

The first step to enrolling in a DMP is to meet with a credit counselor to determine if it’s the best option for you. The initial credit counseling session is usually free.

  1. Meet with a certified credit counselor to assess your financial situation – income, expenses, and debt. The counselor will help determine how you found yourself in this situation.
  2. The counselor will do a soft credit pull – no effect on your score – to verify with you that balances and payments are recorded correctly.
  3. They will make recommendations on how to decrease spending, increase your income, and adjust your budget.
  4. They will suggest debt relief options based on your income and amount owed. If a debt management plan is good for you, you can sign up immediately.
  5. When you enroll, the counselor will help you create a realistic budget and will negotiate with creditors to reduce interest payments, waive fees, and agree to a payment plan.
  6. Once both you and the creditors agree on the terms of the plan you can officially enroll in the debt management program.

The counseling agency may charge set up fee and a monthly fee. The exact cost of these fees depends on the agency, state regulations, and your income, but usually, they are low. You may even be eligible for a fee-waiver if you meet certain income qualifications.


DMPs are a highly effective option because they are tied to your budget. As you’re weighing debt management plans pros and cons consider:

Affordable Payments: The counselor will review your income and expenses to make sure your payments fit your budget.

Lower Interest Rate: Credit counseling agencies negotiate with creditors to lower rates by 8%.

Waived Fees and Penalties: A DMP often includes waived late fees and penalties making it easier for you to pay down your balances faster.

Single Monthly Payment: You get to consolidate multiple debts into one payment without taking out a loan. Consolidation simplifies your finances, making bills easier to manage and less likely that you’ll miss a payment.

Improve Credit Score: You make one monthly payment consistently for 6 to 8 months and your score will improve. It will get even better once you’ve completed the plan.

Financial Education: Nonprofit credit counseling agencies offer articles, workbooks, and other financial resources to help you better manage money and live within your means.

Collection Calls End: While you’re in the program and making payments the calls from collection agencies and creditors will stop.

Avoidance of Bankruptcy: DMPs provide a viable bankruptcy alternative, which can have more severe and long-lasting impacts on your credit score and finances.


Understanding the cons is equally important to make an informed decision. Here are some drawbacks to consider when weighing the pros and cons of a debt management plan:

Limited Credit Use: Most DMPs require you to close your current credit cards and refrain from opening new ones or taking out loans while on the plan.

Hurt Credit Score: Enrolling in a DMP may initially cause your score to drop.

Fees: Most DMPs charge enrollment and maintenance fees. The monthly fee will vary by agency and your income level.

Not Suitable for All Debts: You can only use a DMP for unsecured debts like credit cards, personal loans, and medical bills. Student loans and secured debts are not eligible.

Commitment and Discipline Required: For a DMP to succeed you must adhere to a strict budget and make regular payments.

Time-Frame: DMPs are not quick-fix solutions. They take three to five years to complete on average.

Not All Creditors Agree: Your credit issuer may not agree to the proposed debt payment plan.

How can a debt management plan impact my interest rates?

Lower interest rates

One of the most compelling advantages of a debt management program is that it can significantly lower your interest rate. When you enroll in a DMP, credit counseling agencies work on your behalf to negotiate with creditors. The goal of these negotiations is to lower the interest rates on your outstanding balances, making it easier and faster for you to pay down the principal balance.

The reduction in interest rate varies depending on the original amount due, the creditors involved, and the terms of your DMP. However, it’s not uncommon for your interest rate to be reduced to around 8%. Sometimes they go as low as 2%. This reduction can lead to significant savings over the life of the DMP.

A lower interest rate can help reduce your monthly payments, and allow more of your payment to go toward the principal so you will become debt-free faster.

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

Most credit issuers are willing to participate in a DMP as it increases the likelihood that they will receive payment. However, some credit card companies will not approve the plan. In this case, the original terms of the debt remain and you’ll have to pay them separately. Don’t panic; there are steps you can take and options available to manage this situation effectively.

Firstly, seek further debt management advice from your credit counseling agency. They can help you budget for this separate payment. Counselors can offer guidance on prioritizing your bills and making adjustments to ensure you can manage these payments without compromising your progress in the DMP.


1. Will a debt management plan hurt my credit?

A debt management plan can initially hurt your credit, especially if it involves closing your current accounts, which is often necessary to stop accruing new charges. This action may decrease your available credit, lowering your credit utilization ratio—a significant factor in your credit score. As you make consistent on-time payments, you’ll establish a positive payment history, reduce your debt-to-income ratio, and improve your score.

2. Should I Include All Debts in a Debt Management Plan?

Aim to include all debts in your debt management program. The more you can include, the more money you’ll save. Some DMPs have caps on how much debt you can have to participate so you may not be able to include all. Also, not all debts qualify. Student loans, owed tax, and secured debts like mortgages are not covered.

3. Can I pay more than my scheduled monthly payments?

Absolutely, it’s never a bad idea to pay off debts faster if you can afford to. Let the agency know in advance that you want to pay more so that the additional funds are applied correctly. They will also need to know if it’s on a one-time basis or if you’d like to make extra payments over the next few months.

4. Will enrolling in a debt management plan stop collection calls?

Yes, enrolling in a DMP will put a stop to collection agencies calling you. Your counselor now serves as a liaison between you and your creditors or collection agency. They will continue to send statements but no more phone calls. Do note that it can take up to three months of consecutive on-time payments for the calls to stop completely.

Bottom Line

Debt management plans offer a way to get your finances back on track without doing much damage to your credit score. You get to consolidate payments without taking out a loan, save money on interest and fees, and pay off your debt in five years or less. There are a lot of advantages to DMPs but they are not for everyone.

Meet with a nonprofit credit counseling agency to determine if a DMP is for you. A free credit counseling session can help you decide on the best debt relief options for your circumstances.

If you’re unsure about enrolling in a DMP, you may want to look into debt settlement or debt consolidation. Both are alternative ways to become debt-free fast.

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