Debt Management Plans Overview

What Is a Debt Management Plan (DMP)?

A DMP is a structured repayment program administered by nonprofit credit counseling agencies. The agency negotiates with your creditors to lower interest rates and consolidate payments into one monthly amount paid to them, which they distribute to your creditors.

How DMPs Work

Step 1: Credit Counseling Session

Free consultation with certified counselor to review your finances and explore options.

Step 2: Budget Analysis

Counselor analyzes income, expenses, and debts to determine if DMP is appropriate.

Step 3: Creditor Negotiations

Agency contacts creditors to request reduced interest rates and waived fees.

Step 4: Plan Setup

If creditors agree, you're enrolled in the DMP with a monthly payment amount.

Step 5: Monthly Payments

You make one monthly payment to the agency, which distributes to creditors.

What Debts Can Be Included

Eligible Debts

• Credit card balances
• Store cards and retail accounts
• Unsecured personal loans
• Medical bills (sometimes)
• Payday loans (sometimes)

Ineligible Debts

• Mortgages
• Auto loans
• Student loans
• Secured debts
• Tax debt

Benefits of DMPs

• Lower interest rates (often 6-10% instead of 20-30%)
• Waived late fees and over-limit fees
• Single monthly payment
• Stop collection calls
• Professional guidance and support
• No credit score requirement
• Get out of debt in 3-5 years

Drawbacks to Consider

• Must close enrolled credit card accounts
• 3-5 year commitment required
• Setup fee ($0-$50) plus monthly fee ($20-$75)
• May note on credit report (neutral impact)
• Must have stable income
• Miss a payment = removal from program
• Not all creditors participate

Cost Breakdown

Typical Fees

• Setup fee: $0-$50 (one-time)
• Monthly fee: $20-$75
• Counseling: Free initial session

Total Savings Example

$20,000 in credit card debt at 22% APR:

• Without DMP: $35,000 total paid over 10+ years
• With DMP: $24,000 total paid over 5 years
• Savings: $11,000+ even after fees

Credit Impact

During the Plan

• Notation on credit report (not visible to lenders in FICO 9)
• Credit accounts closed (may lower score temporarily)
• On-time payments help rebuild credit

After Completion

• Notation removed from report
• Improved payment history
• Lower credit utilization (debt paid off)
• Better score than if you continued struggling

Who Should Consider a DMP

• $5,000+ in unsecured debt
• Struggling to make minimum payments
• Stable income to commit to payments
• Want to avoid bankruptcy
• Need creditor negotiations
• Want professional guidance

Alternatives to DMPs

• DIY debt payoff (debt snowball/avalanche)
• Balance transfer credit cards
• Debt consolidation loans
• Debt settlement programs
• Bankruptcy (as last resort)

Finding a Reputable Agency

Look For

• Nonprofit status (501(c)(3))
• NFCC or FCAA membership
• Certified credit counselors
• Free initial consultation
• Clear fee structure
• Accreditation (COA)

Red Flags

• Upfront fees before services
• Pressure to enroll immediately
• Guarantees or unrealistic promises
• No counseling, just enrollment
• High monthly fees (over $75)