What Is a Debt Management Plan (DMP)?

Before considering debt management programs, it’s important to conduct a careful review of your options. The National Foundation for Credit Counseling (NFCC) can help you with other alternatives and direct you towards a nonprofit credit counseling agency to assist with your debt management plan. Assessing whether a DMP is a viable option is a good idea before taking the final step to a Chapter 7 or Chapter 13 bankruptcy.

For more articles relating to debt relief and bankruptcy alternatives, see FindLaw’s Debt Negotiation and Settlement section.

What Is a Debt Management Plan?

A DMP lets you make a single payment to a credit counseling organization each month, which is then dispersed to your creditors. DMPs are effective for individuals who have accumulated many small consumer debts, such as from store credit cards, and fallen behind on their payments.

Consumers can enroll in DMPs after receiving a recommendation from a certified credit counselor who has thoroughly reviewed their personal finances. It can work as a temporary solution in certain cases, but is not a replacement for creating a budget and managing your finances.

How Debt Management Plans Work

Figuring out which debts to pay first, how much to pay each month, and other logistical decisions can be frustrating. DMPs help consumers work off their debt as quickly as possible by leaving these decisions to credit counseling professionals.

In general, you deposit money with the DMP organization each month. The DMP pays a set amount to your creditors. In most cases, creditors agree to waive fees or lower interest rates, since using a DMP ensures regular payments.

A DMP resembles a Chapter 13 bankruptcy, as you and the credit counselor develop a repayment plan. Like a Chapter 13, you make one payment to the DMP agency, and they disburse the payment to your creditors. In a bankruptcy, eligible remaining unsecured debts may be discharged at the end of the repayment period. Your DMP ends when your creditors receive their final payment. There are also other available methods of becoming debt-free.

DMPs work best when the majority of your debts consist of unsecured debts. The type of debts handled in DMPs include:

• Personal loans without security or co-signers
• Unsecured credit card bills
• Medical bills
• Store and retail credit accounts
• Payday loans

Some collections accounts (accounts that have been sold to collection agencies) can be included in DMPs, but negotiations are often difficult with these agencies.

Pros and Cons of a Debt Management Plan

A DMP has several benefits, including:

• You will stop getting harassing collection calls
• You will have a fixed timeline (3-5 years) to pay off your debts
• You will only have to pay one monthly payment
• You will get free education and financial counseling to help you better manage your financial situation

There are also some drawbacks to enrolling in a DMP. Take the following into consideration before committing:

• You will have to close your credit card accounts as you work your way through the plan
• The plan only includes unsecured debt, such as medical bills and credit card debt 
• Secured debts, such as mortgages and car loans, are unaffected
• You may need to pay a one-time setup fee to enroll in the plan
• Some lenders may not accept the DMP

If a DMP can work for you, it is almost certainly a better option than declaring bankruptcy.

Choosing the Right DMP Credit Counselor

It’s important to have a good agency acting on your behalf for your DMP case. These are some things to consider when looking for a debt management program.

• Other services and financial advice: Avoid agencies that offer only DMPs. The agency should help you develop a budget and offer financial management classes once you’re done with your payment plan.
• Negotiations for interest rates and fee waivers: Ideally, you want your monthly payments to reduce your account balances. To do this, you’ll need lower interest rates and for your creditors to waive any outstanding fees. Many credit card companies are willing to do so, but you should verify before committing to a DMP.
• Confirm payments and accreditation of the credit counselor: If you choose a DMP, check to make sure your creditors receive payment before the due dates and in the proper billing cycle. Reputable credit counseling organizations will guarantee it in writing. The organization should offer online statements. You can check the status of the company at either the NFCC or the Better Business Bureau (BBB).
• Ensure you can manage your monthly payment: The purpose of the DMP is to reduce your credit card balances and improve your credit score. Your payment plan should not be more than you can pay. 
• Credit rating concerns: Negative information remains on your credit report for a statutory period. Consumer credit agencies cannot remove negative information before that time. Enrolling in a DMP will not remove that information any faster or make your report any worse.
• Other DMP matters​: Some agencies charge an enrollment fee. There are nonprofit and not-for-profit agencies that may not have such fees. You can locate these companies at the NFCC site.

Be aware that if any of your creditors will not agree to your payment plan, you will need to continue payments on those accounts in full.

Getting the Most Out of Your DMP

Having a plan in place is only the beginning. The following advice will help you successfully complete your DMP and become financially solvent:

• Do not stop paying your bills to your creditors until they approve the plan. If you do, you may end up with late fees and hits to your credit rating.
• Before sending monthly payments to the organization handling your DMP, confirm with your creditors that they have accepted the plan. Otherwise, you’ll run into more trouble down the road.
• To avoid late fees and penalties, schedule DMP payments to pay creditors on or before the due dates. Double-check with your creditors to ensure bills the agency paid your bills on time so you won’t incur a monthly fee.
• If lowered interest rates or waived fees are part of the plan, confirm this by reviewing your statements. Make sure to contract the DMP if you discover any errors.

Once you commit to a DMP, it’s crucial to make your monthly payments.

Other Debt Relief Options

If you don’t think a DMP is the best solution for you, there may be other options you can consider. These include:

• Debt consolidation loan: This is when you get one loan to cover all your debts. It allows you to make monthly payments at lower interest rates.
• Bankruptcy: If you satisfy the requirements, filing for bankruptcy may also be an option for you. Bankruptcy will discharge most debts but will stay on your credit report for seven to ten years depending, on the type of bankruptcy you file.
• Debt settlement: This is when you can get your lender to settle for less money than the amount you actually owe. It’s not a common occurrence, but it never hurts to ask.

State laws differ as to debt repayment requirements. Talk with a bankruptcy attorney to understand your options and figure out if a debt management company is right for you.

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