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Debt Management PlansóRight or Wrong for You?

Debt can pile up despite the best of intentions—because of unforeseen life events or due to poor financial decisions. Too much debt can make you feel buried under bills without a clear path toward financial security. One option for help digging your way out is a debt management plan (DMP) with a credit counseling organization. A DMP is only for those struggling with repayment on unsecured loans—credit cards, medical debt, and possibly student loans.

Before signing up for a plan, it’s smart to understand how the process works and if the benefits outweigh the drawbacks for your particular situation.

How a DMP works

Many credit counseling agencies that offer debt management plans are nonprofits that also offer other services to help people better manage their finances. You’ll be connected with a counselor who will review your financial situation to understand what options to recommend. Usually, a DMP will only be offered as a solution to unsecured debts (those without collateral), like credit card debt. You may be able to choose which accounts are included in the DMP, but you will need to close all credit cards that are a part of your DMP.

Your counselor will negotiate with your creditors to create a single bundled payment. This monthly payment is tailored to what you can afford, and you’ll know precisely what that amount is before the plan begins. You’ll make the payment to the counseling agency, which then pays each creditor their agreed-upon portion. The agency may also include in the monthly amount a fee for their service.

The goal of your plan will be to pay off the included debts in three to five years.

A DMP might be right for you if:

  • Your unsecured debt is between 15% and 39% of your annual income.
  • You have a steady income.
  • You believe you could pay off your debt within five years if you had a lower interest rate.
  • You can get by without opening new lines of credit.


In addition to a light at the end of the tunnel and a sense of relief, benefits of a DMP also include:

  • Professional advice from a counselor who will review your budget, debts, and goals to help determine your best option.
  • Waived fees and lower payments to your creditors. Your counselor’s negotiations will include waiving previously charged fees and lowering the required monthly payments to creditors. This pays down your debts more quickly and frees up money for necessary living expenses.
  • Getting out of debt sooner because your counselor may also be able to negotiate lower interest rates on your debts, which means more of your payment goes toward the principal balance.
  • Having only one monthly payment.
  • Your accounts brought current. As part of a DMP, your creditors may agree to "re-age" your account and update the account status to current, eliminating late fees.
  • Avoiding defaulting or declaring bankruptcy.
  • Fewer to zero calls from creditors and collection agencies.
  • Accountability—your credit counselor will keep you accountable to your plan.


There are still potential drawbacks to a DMP, rather than another type of debt consolidation or repayment program:

  • DMPs generally don't include secured debts and some types of unsecured loans.
  • The fees, which vary depending on the counseling agency and state laws, may lessen the money saved by the DMP or put it out of reach entirely.
  • You'll have to close any credit cards included in the DMP, diminishing your access to credit. Creditors may also require you to stop using credit cards that aren't part of the DMP while you're participating in the program.
  • A missed payment can end your interest rate cuts.

A debt consolidation loan or balance transfer credit card might make more sense for you. Or, if your situation is severe enough, bankruptcy may be the only way to get you on a manageable repayment plan. An initial session with a credit counselor can help you determine which option is best for you. And this first conversation is almost always free.

When looking for a credible counseling agency, look at nonprofit agencies that are part of the National Foundation for Credit Counseling or the Financial Counseling Association of America, or are accredited by the Council on Accreditation. These memberships and accreditations require a standard level of quality among counselors.

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