1. Debt Management
  2. Is debt management a good idea?

Is debt management a good idea?

DMPs can make it easier and faster to pay off your debts

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When you take out a loan or make payments using a credit card, you eventually have to repay the money you borrowed. Eliminating debt can be overwhelming if you’re making many monthly payments, you have high interest rates on some of your debt, or your income is barely enough to cover your bills.

If you’ve tried to get out of your unsecured debt on your own and haven’t been successful — or you don’t know where to begin — a debt management plan (DMP) might be worth considering.

Key insights

  • A debt management plan (DMP) can help you pay off your unsecured debts in full while potentially receiving a reduced interest rate or lower fees.
  • Monthly DMP fees commonly range from $0 to $50. In exchange, the debt management company sets up your payment plan, works with your creditors to see if you can get a reduced rate or fees, and issues monthly payments to your creditors.
  • DMPs are a good idea if you have a lot of unsecured debt with high interest rates, you want to receive consistent help from a credit professional and you’re disciplined enough to complete the plan.

What is a debt management plan?

A debt management plan is a way to help you get out of unsecured debt in a reasonable time frame, fully repay your creditors and avoid bankruptcy. Credit counselors often offer DMPs. If you sign up for a DMP, you’ll enroll your unsecured debts and make one payment for everything you owe directly to your credit counselor.

Your credit counselor then sends the funds to your creditors according to an agreed-upon repayment schedule. While you may pay a fee to the credit counselor for this service, they’re often able to negotiate lower rates and more fee waivers with your creditor than you may have been able to do on your own.

Keep in mind that DMPs are only designed to manage unsecured debt, like credit cards, personal loans and private student loans. You can’t use them for secured debt, such as mortgages or car loans, or for federal student loans.

Pros and cons of debt management

There are pros and cons to consider before entering into a DMP.


  • You’ll get professional advice: When you sign up for a debt management plan, one of the biggest advantages is getting professional advice about your finances. Besides fixing your existing financial issues, this can help set you up for future financial success.
  • You may improve your credit score over time: You may be able to improve your credit score as you make on-time payments on your DMP and pay off your unsecured debt.
  • You can save money in the long term: The DMP company may negotiate lower interest rates and fees for you, saving you money as you pay down your debt.


  • You may pay monthly fees: You may need to pay monthly fees for a DMP. While some companies don’t charge fees, you may have to pay up to $50 monthly for a plan. Your potential interest savings might offset these fees, but that’s not always the case.
  • DMPs only work if you stick with them: If you don’t think you can make the payments, you’re better off with another strategy, like debt consolidation or debt settlement.
  • You might have to close your credit cards: This means you won’t have access to your credit cards if you need them in the future. In addition, your credit score might temporarily decrease, as closing cards means you won’t have as much available credit, which increases your credit utilization ratio.
  • You can’t take on additional debt until the plan is complete: If you need credit in the future, this could put you in a bind. To counteract this potential pitfall, consider building an emergency fund by setting aside as much as you can each month to cover unexpected expenses.

For-profit vs. nonprofit debt management

DMPs are offered by both for-profit and nonprofit companies. When choosing between a for-profit and nonprofit debt management company, factors to consider include how quickly you need help and what motivates the company and its employees.

“For-profit companies will typically have a profit-focused mandate and incentivize employees with commissions,” said Said Gates Little, the president of The Southern Bank Company in Gadsden, Alabama. “This means you may be given false hope or promised exaggerated results so they can sell you their service. There are plenty of reputable for-profit debt management services, so do meticulous research into customer experiences and reviews.”

By contrast, Gates said, “A not-for-profit tends to prioritize financial literacy and debt reduction, but the trade-off is that the access to these services is limited. Usually, there are waitlists for these programs, and you may need a more speedy solution.”

» MORE: Best Credit Counselors for Debt Management

Debt management vs. debt consolidation vs. debt settlement

Debt management, debt consolidation and debt settlement are all ways to handle your debt. Here’s how they differ.

With a DMP, you work with a credit counselor who will negotiate lower rates and fees for you with your creditors. You make one payment to the debt management company for all your unsecured debts, and they direct these payments to your creditors for you.

The primary goal of a DMP is to help you pay off your unsecured debt in full while you benefit from lower rates and fees.

One of the key benefits of a debt management plan is the potential to receive a lower rate on your debt than you might be able to negotiate on your own. “If a consumer would benefit from a slightly lower interest rate on a credit card, a debt management plan may be helpful,” said Sean Fox, the chief revenue officer at the digital personal finance company Achieve.

Debt consolidation allows you to combine your higher-rate debt into one lower-rate loan.

“There are many ways to [consolidate your debt],” Fox said. “An individual could get funds in any number of ways — borrow from family or friends, take out a loan against a 401(k), obtain a HELOC or home equity loan  — but using a debt consolidation loan, also known as a personal loan, is a very popular way to do debt consolidation.”

Similar to a DMP, one of the primary goals of a debt consolidation loan is reducing your interest rate so you can pay off your debt faster and reduce your borrowing costs.

“If you have multiple credit card accounts,” Fox said, “and are carrying debt on them with high interest rates, a debt consolidation or personal loan can be very helpful. The main premise is that the consolidation loan would offer a lower interest rate than credit cards. With the proceeds, you pay off all the high-interest accounts and are left with just one payment a month at that lower rate.”

Recent Federal Reserve data suggests the average rate on an interest-bearing credit card is 20.40%, compared with an average rate of 11.23% on a 24-month personal loan. That means you may save more than 9% interest a year simply by shifting your debt from a higher-rate credit card to a lower-rate personal loan.

Unlike debt management and consolidation plans, which seek to pay off your debts in full at a potentially reduced rate, debt settlement focuses on paying off your debt for a reduced amount. Reputable debt settlement companies work with your creditors to negotiate payment of your debts for an amount less than you owe.

“If you are having a hard time with even minimum payments  — and have endured a financial hardship (such as job loss, medical expense, divorce)  — debt resolution could be an option,” Fox said. “Regulated by the Federal Trade Commission, debt settlement companies work on a consumer’s behalf to lower principal balances.”

For example, a debt settlement company might negotiate an agreement with your credit card company that allows you to pay 50% of your balance. So, if you have a $20,000 balance, you might agree to pay $10,000, with the remaining $10,000 forgiven by the creditor.

You may be responsible for income taxes on the forgiven debt. You can work with a tax expert to confirm how much you might owe in taxes.

Debt settlement can be risky, as there’s no guarantee your creditors will agree to settle. Before signing up for any debt relief plan, do your research to ensure the debt settlement company you use is reputable.

» MORE: Debt settlement vs. debt consolidation

What to look for in a debt management plan

When considering a debt management plan, the first step is to find a reputable credit counselor. Daniel Colston, a certified financial planner and the CEO of Upward Financial Planning in Roanoke, Virginia, said: “Having a reputable and accredited provider that has experience in helping individuals resolve their debt problems means you'll be able to make progress faster with increased peace of mind.

“In addition to the trust element,” Colston said, “it's critical to understand the fees involved and ensure that the plan is affordable and feasible given your financial situation. The last thing that your debt mitigation plan should do is put greater financial stress on you.”

Never work with a credit counselor or other debt relief company that wants to charge you an upfront fee  — this is a sign of a scam. Credit counselors and debt relief firms should help you develop a plan before charging you a penny.


How long does a debt management plan last?

There’s no set duration for a DMP; it depends on how long it takes to pay off your debt. That said, it’s common for a DMP to take two to five years to complete. The quicker you can pay off your debt, the less interest you’ll pay, so you should strive to pay off your debt as quickly as possible.

What happens if you miss a payment on a DMP?

For a DMP to work, you must consistently make timely payments. Your credit counselor worked with your creditors to develop the DMP on your behalf, and you may have received reduced interest rates or fee waivers in exchange for timely payments.

If you fail to make your payments as agreed (such as missing a payment), it will take you longer to achieve your goals. In the worst-case scenario, the DMB might be voided.

Does a DMP affect your credit score?

If your DMP is successful, you’ll fully repay all your debts and build a positive payment history. This can boost your credit score. However, if you close some of your accounts (like credit cards) as a part of the DMP, your credit utilization ratio might increase and temporarily lower your score.

Can you get a loan while on a DMP?

You can get a loan while on a DMP if you meet the lender’s credit and income qualifications and if you haven’t agreed to not take on any more debt as a part of the plan. Even if you qualify for a loan while on a DMP, you should speak with your credit counselor first and consider if the loan will move you toward achieving your financial goals or set you back.

Bottom line

If you have a lot of unsecured debt with high interest rates, like multiple credit cards, and you’re struggling to get out of debt on your own, a DMP might be a good option. You can start by working with a credit counselor to review your finances and create a financial plan.

Reputable credit counselors will let you know if a DMP is right for you or if you’d be better served by a different option, like a debt consolidation loan or even filing for bankruptcy if your financial situation is extreme.

Before signing up for a debt management plan, consider any fees you’ll be required to pay and if you think you can complete the plan. If you don’t think you can make the payments on time, there’s no point in paying the monthly fees — it will be a waste of money, and you’ll still be in debt.

By carefully considering your finances before signing up for a plan and determining if you’re disciplined enough to follow through, you’ll be better equipped to get out of debt.

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Federal Reserve, "Consumer Credit - G.19." Accessed Feb. 17, 2023.
  2. Consumer Financial Protection Bureau, "Submit a complaint about a financial product or service." Accessed Feb. 17, 2023.
  3. Experian, "A Debt Management Plan: Is It Right for You?" Accessed Feb. 17, 2023.
  4. Federal Trade Commission, "How to Get Out of Debt." Accessed Feb. 17, 2023.
  5. Federal Trade Commission, "Report to help fight fraud!." Accessed Feb. 17, 2023.
  6. IRS, "Topic No. 431 Canceled Debt – Is It Taxable or Not?" Accessed Feb. 17, 2023.
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