Takeaways
- Debt management plans (DMPs) give you a single source for credit payments.
- Credit counseling agencies charge low monthly fees ranging from $25 to $50.
- DMPs lower your APR, streamline payments, and set structured repayment terms.
- Credit counseling agencies require you to close your credit accounts in your DMP.
- Enrollment in DMPs can be noted on your credit report, and closing lines of credit can cause a short-term dip in your credit score.
According to the Certified Financial Planners Board, 42% of Americans hope to reduce debt in 2025.[1] If you're feeling the weight of credit card debt and struggling to juggle multiple monthly payments, a Debt Management Plan (DMP) could be your beacon of hope. This structured approach to financial recovery streamlines your repayment and slashes those pesky interest rates—without the drastic measure of bankruptcy.
Read More: How to Pay Off Debt
Take the Next Step:
On Kikoff’s Website
Kikoff Credit Builder
Smart Money Rating: 5/5
Best For: Building Credit Scores
Fees: Starting at $5/month (no interest or fees)
Credit Line: $750 – $3,500 (Terms Apply)
What Is a Debt Management Plan?
A Debt Management Plan is a repayment program consolidating multiple unsecured debts, such as credit cards or personal loans, into one manageable monthly payment. Rather than taking out a new loan, you work with a credit counseling agency, which negotiates with your creditors on your behalf to lower interest rates and waive certain fees.
Smart Tip:
The Federal Reserve tracks interest rates, and in February 2025, the average interest rate on credit cards was 21.37%.[2] A credit counseling service can help you lower the APY you are charged during a DMP.
How Debt Management Works
The DMP process usually begins with a consultation from a certified credit counselor, who will review your income, expenses, and debt obligations. Here is how it typically works:
- Enrollment and Setup: You enroll in the plan through a counseling agency. Depending on your state and income, you may be charged a small setup fee ($25-$75) and a monthly service fee ($25-$50).
- Negotiation with Creditors: The agency contacts your creditors to request lower interest rates, waived late fees, and more favorable repayment terms. Some creditors freeze your accounts to prevent further borrowing during the plan.
- Single Monthly Payment: Instead of paying multiple creditors, you send one payment to the agency monthly. They then distribute the funds accordingly.
- Plan Duration: Most DMPs last 36 to 60 months. If you stick to the plan, you will pay off your debts in full by the end of the term.
- Credit Reporting: Participating in a DMP does not directly affect your credit score, but accounts may be marked as "managed by credit counseling" on your credit report.
Here's When Debt Management Is Right for You
A debt management plan is not for everyone. It is best suited for people who:
- Have a steady income and can commit to regular monthly payments.
- Struggle to keep up with high-interest credit card debt
- Want to avoid bankruptcy and long-standing credit issues
- Need professional help organizing payments and negotiating with creditors
- Are not eligible or do not want to take out a debt consolidation loan
A DMP may not be necessary if you are only behind on one or two small accounts, or you can manage debt independently by adjusting your budget.
>> Too much debt? Try following the 30% Rule
5 Steps to Start a Debt Management Plan
If you think starting a debt management plan could be right for your financial situation, follow these steps:
1. Find a Reputable Credit Counseling Agency: Look for nonprofit agencies accredited by organizations such as the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). Avoid companies that charge high upfront fees or guarantee quick fixes.
2. Schedule a Consultation: During a session (often free), a certified counselor will assess your financial situation and determine whether a DMP is appropriate. You might need a DMP if your debt-to-income is over 30%.
3. Review Terms and Fees: Before enrolling, ask about setup and monthly fees, which are usually low but vary. Make sure you understand which creditors will participate and how long the plan will take to complete. Part of the downside to using DMPs is that you are committed to the plan for 36-72 months.
4. Stick to the Plan: Once you're in, staying on track is crucial. Making monthly on-time payments is a sign of your commitment to the plan. Remember, any late or missed payments could put the benefits you've negotiated with your creditors at risk. Try creating a budget to adhere to your plan.
5. Complete the Program: After completing your DMP, you'll have repaid all included debts in full. Learning how to pay off your debt is a critical life skill that you can carry with you.
Get Smart With Your Money
Fresh weekly articles delivered straight to your inbox.
Enter your name and email for free tips and tricks.
Pros of Debt Management Plans
- Reduced Interest: As part of your DMP, your credit counselor will try to negotiate a lower APR for your debts. Credit card APRs can be very high, causing costly interest payments when you pay your bill late. Lowering your APR will reduce the overall cost of your debt.
- Streamlines Payments: Juggling multiple credit cards and loans is hard to manage. Especially when you consistently miss payments or feel you can't get ahead of the curve. Credit counselors streamline your payments. You pay them one monthly payment, and they, in turn, distribute your payment to the credit card companies or other financial institutions.
- Forces Closing Accounts: During the beginning phases of working with a credit counselor, you will be required to close your credit accounts. This will cause your credit utilization to increase and cause a decrease in your credit score. But this short-term pain is countered by longer-term gains from debt repayment.
- Creates Better Habits: Creating smart money habits is a lifelong event. Learning how to pay off your debts and control spiraling debt forces you to make tough choices. To get a grip on your finances, you should curb excessive spending, try a 30-day no-spending challenge, or start making meal plans.
Cons of Debt Management Plans
- Limits Access to New Credit: During your DMP, your credit counselor will work with you to close your credit accounts. From there, you must rely on the cash you have on hand, your savings account, and your income to support your lifestyle and DMP. You won’t be able to open a credit card account.
- Long-Term Commitment: DMPs typically last three to five years. Life happens, so make sure you can fully commit to this long-term strategy of controlling your debt.
- Not Available for all Debts: Unfortunately, DMPs only work for unsecured credit, like credit cards or personal loans (although student loans are excluded). Secured loans like your car note or mortgage aren’t part of DMPs.
Alternatives to Debt Management
If a debt management plan does not feel right for your situation, you may want to consider one of these alternatives:
- Debt Consolidation Loan - This involves taking out a personal loan to pay off multiple debts, allowing you to make a single payment at a lower interest rate. This option is only viable if you qualify for a favorable loan rate.
- Debt Settlement - In this approach, you or a settlement company negotiates with creditors to pay less than the total owed. While it may reduce your debt, it often damages your credit and involves significant risks.
- Bankruptcy - For those in severe financial distress, bankruptcy may be the last resort. Chapter 7 bankruptcy eliminates unsecured debt but stays on your credit report for up to ten years. Chapter 13 bankruptcy allows repayment over time but involves court supervision.
Smart Summary
A Debt Management Plan (DMP) is a structured, nonprofit-assisted repayment strategy that can help individuals pay off unsecured debt in three to five years. By consolidating multiple debts (credit cards, personal loans, personal lines of credit, etc.) into one monthly payment and negotiating lower interest rates, a DMP makes debt repayment more manageable.
Smart Money requires our expert writers to rely on trusted primary sources—academic research, government reports, expert interviews, original reporting, and peer-reviewed data—to deliver precise and up-to-date content. All of our content is thoroughly fact-checked. We also incorporate relevant research from reputable publishers when it aligns with our editorial focus. For a closer look at our rigorous journalistic standards, explore our editorial guidelines.
(1) Certified Financial Planners Board. Reducing Debt is Americans’ No.1 Financial Priority for 2025, CFP Board Research Finds. Last Accessed May 17, 2025.
(2) Federal Reserve Bank of St. Louis. Commercial Bank Interest Rate on Credit Card Plans, All Accounts. Last Accessed May 17, 2025.
