The Guide to Debt Management Plans

There are several ways to receive hands-on guidance to pay off debt.

A debt management plan can be the straightforward solution you need to focus on paying off your unsecured debts quickly. In addition to lumping your debts into a single monthly payment, you can also pay less interest and get help improving your credit.

What is a debt management program?

A debt management plan (DMP) is a repayment plan overseen by a nonprofit consumer credit counseling service, such as National Foundation for Credit Counseling (NFCC) member agencies.

This debt repayment strategy doesn’t seek debt forgiveness or recommend that you stop making your monthly payments. Instead, you pay off your existing balance but potentially at a lower interest rate. It’s not uncommon to see interest rate reductions from 30% to approximately 10%.

Unsecured debts such as credit card balances, personal loans, and medical bills are eligible.

Typically, the average repayment period is between three and five years.

Your new monthly payment might be higher than your current commitment to achieve this payoff goal. If so, the good news is that you can significantly reduce your lifetime interest costs and repair your credit sooner.

While DMP enrollment appears on your credit report, it won’t directly harm your credit score as long as you don’t miss a monthly payment. However, future lenders may be hesitant to approve new credit applications if they see you’re participating in a program.  

How Debt Management Works

Here is a step-by-step look at how debt management helps pay off debt:

  1. Free initial consultation: You can speak with a licensed debt consultant for free. The consultant reviews your income, monthly expenses, and outstanding debt obligations to help you compare repayment strategies.
  2. Enroll qualifying debts: After a free initial consultation to review your circumstances, you can enroll your qualifying unsecured debts into a management plan, such as credit cards, personal loans, and medical debt. You will also pay account setup fees and ongoing plan fees.
  3. Negotiate rates and fees: The counseling service will work with your creditors to waive outstanding late fees and reduce your ongoing interest rate.
  4. Make monthly payments: You send one monthly payment to your plan provider. Then, the provider sends the appropriate amount to each creditor for on-time payment.
  5. Build credit history: Each payment shows as an on-time payment on your credit history report which can help gradually increase your credit score. Reducing your total debt balance can also improve your score.
  6. Pay off debt: You will continue making one monthly payment for your enrolled debt balances until they are paid off. Most repayment programs last 3-5 years.

Qualifying Debts for Debt Management

Unfortunately, only unsecured debts not backed collateral are eligible for a debt management plan. So, for example, you’re unable to enroll your home mortgage or auto loan. Overdue utility bills or cell phone bills also won’t make the cut.

Qualifying debts can include:

  • Credit cards
  • Personal loans
  • Medical bills
  • Select private student loans
  • Certain installment contracts (i.e., country club dues or gym memberships)

Debt management program pros and cons

There are several advantages and disadvantages of enrolling in debt management.


  • Reduced rates and fees: Creditors will likely reduce your interest rate and waive late fees upon enrolling in a plan.
  • One monthly payment: Instead of keeping track of multiple bill due dates, you send one payment until your graduate from the plan.
  • Credit counseling access: While you may primarily use this service to pay off debt quickly, you also get on-demand access to a credit counselor. This advisor can help you practice good money habits and build a personalized spending plan.
  • Doesn’t hurt your credit score: Debt management programs won’t hurt your credit score or credit history like debt relief as you continue making your monthly payments. However, you may see a temporary credit score drop if you must close credit card accounts to enroll in a DMP.


  • May need to close credit cards: You may need to close your active credit cards and avoid adding new unsecured debt until you complete the program.
  • Initial and ongoing fees: The initial consultation is free to determine if debt management is a good fit for your financial goals. However, plan on paying an initial setup fee and an ongoing plan fee.
  • Unsecured debts only: Most unsecured debts are eligible but not collateral-backed loans. Thankfully, unsecured loans typically have the highest interest rates.
  • Potentially unaffordable monthly payment: You may not be able to enroll every unsecured debt if you struggle to afford the plan’s monthly payment on a limited income. Missing payments may lead to canceling your plan.

Cost of a debt management program

Legit debt management plans only charge these two fees:

  • Initial setup fee: One-time fee of up to $75. Most service startup fees are between $30 and $50.
  • Monthly fee: An ongoing monthly fee is usually between $20 and $50 for the plan’s duration.

The fees can vary by agency and state laws. You may qualify for fee reductions if you earn a small income. It can also be worth your time to get price quotes from multiple services to avoid overpaying.

You must determine if these fees are worth the potential interest savings and hands-on help.

The effects of a debt management program on your credit

Participating in a debt management plan can have several positive and negative impacts on your credit.

The potential positive credit benefits include:

  • On-time payments: You will continue making your monthly debt payments before the due date. Your payment history is the most crucial factor for your FICO Score and comprises 35% of your score.
  • Reduces debt balance: Each payment reduces your total amount owed and the credit utilization ratio. The “amounts owed” is the second most significant factor at 30% of your FICO Score.
  • No debt settlement: This approach doesn’t strive to settle your debt for a lesser amount than you currently owe as debt relief does. While debt relief can get you out of debt, your accounts will likely report as delinquent or charged-off. These negative marks remain on your credit file for approximately seven years.

Potential credit downsides include:

  • Special notes for enrolled accounts: Debts participating in your DMP will have a note indicating. This disclosure doesn’t change your score but can raise the eyebrows of a lender performing a credit check.
  • Credit account freezes and closures: Your plan can require you to freeze your credit cards and lines of credit and close paid-off accounts. Closing these accounts reduces your total available credit and the opportunity to extend your payment history and average account age.
  • Cannot open new credit: Not being able to open new credit accounts limits your available credit and delays the chance to form a positive payment history. You must rely on the benefits of paying off your accounts to improve your credit.

Joining a debt management program won’t directly affect your score. However, the agency may have you make voluntary financial decisions to maintain your enrollment.

Choosing to close an account will likely have short-term negative consequences until the credit bureaus can determine you can responsibly manage your remaining bills.

This adjustment process can take 3-6 months from the closing date.

The differences between debt management and debt settlement

A debt counselor may recommend two different payoff strategies for your unsecured debt — debt management and debt settlement (also known as debt relief).

Both repayment methods help you become debt-free and you submit a monthly payment to the agency. The agency also negotiates with the creditor to help you get out of debt sooner.

However, there are distinct differences between both plans.

 Debt ManagementDebt Settlement
Repayment StrategySeeks to reduce your interest rate and outstanding fees. However, it may also accelerate your repayment period resulting in a more significant monthly payment.Strives to reduce the total amount you owe by claiming financial hardship.
There are no late fee waivers or interest rate reductions.
Average Debt-Free Date3-5 years2-4 years
How Monthly Payments WorkAgency collects your payment and distributes it to the creditor each month.Agency collects your payment and places in a dedicated savings account. Then, the agency doesn’t send the creditor any payment until settling an account.
When Creditors Receive PaymentCreditors receive monthly payments until the debt is paid in full.One lump sum after you and the creditor reach a settlement offer
Potential Credit Score ImpactMinimal except for a potential short-term negative impact from closing paid-off revolving accounts.Negative as you will most likely stop making payments to the creditor until settling.

Late fees, discharge, and collections are probable.
Program FeesInitial Setup Fee (usually between $30-$50) & Monthly Fee ($20-$50)  Only when you agree to a settlement. The average fee is between 15% and 25% of the settled amount.
Minimum Required Balance$1,000$10,000

Debt management can be the better option if you can afford the monthly payment and want to protect your credit.

However, settling your debt is more practical if you can’t afford the standard monthly payment and can only become debt-free quickly by reducing your total balance. You must also be comfortable with damaged credit if you pursue debt relief instead.

Responsibilities in a Typical Debt Management Program

Your responsibilities are similar to the standard debt repayment plan your creditor currently requires. For example, you make a minimum monthly payment until the balance is paid in full by each due date.

Your debt counselor will negotiate with your creditors to improve your repayment terms.

So far, so good, right? Well, there are three primary terms and conditions that you must be aware of:

  • Pay monthly fees: Your debt management service collects a monthly fee in addition to your monthly principal and interest payment. Missing your debt payment or plan fees can cancel this assistance and you’re responsible for managing your own debt.
  • Account freezes and cancellations: Enrolled credit cards are frozen so you can’t make new purchases and close when paying off the balance.
  • Cannot apply for new credit: You can’t apply for new unsecured credit until you exit the plan, potentially up to five years later. However, it’s still possible to apply for secured credit like home loans or auto loans.

Avoiding DMP Scams

Unfortunately, not every debt management agency has your best interest in mind. Here are some of the most common scams:

  • Unaccredited agencies: Consider only working with accredited companies. Legit companies will most likely register with the NFCC and have positive Better Business Bureau (BBB) ratings and customer reviews. 
  • Excessive fees: Compare rates from several agencies to avoid overpayment.
  • Not paying creditors: Scam DMP programs may not send your monthly payment to the creditor. So be sure you check your debt accounts regularly to verify they receive payment.
  • Don’t negotiate lower rates or fees: While debt management programs cannot guarantee reducing your rates and fees, you should see at least one reduction or the fees exceed your potential savings.
  • Unclear payment plan: Make sure you understand the program terms and conditions. Understand your requirements but also make sure the agency’s services seem reasonable instead of “too good to be true.”
  • Doesn’t provide a written contract: You should only conduct business if you receive a physical contract instead of simply relying on verbal agreements. This visible proof can protect you if a bad experience happens.

Contact your bank and creditors to halt debt management payments if you suspect you have fallen prey to a scam. You will also need to return to your original payment terms from the lender until you switch to another DMP.