Debt Management Plans

What Is a Debt Management Plan?

A Debt Management Plan (DMP) is an arrangement set up by a nonprofit credit counseling agency in which you make one monthly payment to the agency, which then pays your unsecured creditors on your behalf. In exchange for regular payments, creditors typically reduce interest rates, waive late fees, and stop collection calls. Most DMPs pay off enrolled debt in 36-60 months.

How a Debt Management Plan Works

1. Free Counseling Session: Nonprofit counselor reviews your budget, debts, and goals
2. Proposal: Counselor proposes a DMP with monthly payment based on what you can afford
3. Creditor Negotiation: Agency contacts your creditors, negotiating reduced rates and waived fees
4. Enrollment: You sign agreements; enrolled accounts are closed to new charges
5. Single Payment: You pay the agency one amount each month
6. Distribution: Agency distributes funds to creditors per the plan
7. Completion: Debt paid off in 3-5 years; account status reported as "paid as agreed"

What Debts Can Be Included in a DMP?

Typically Included

• Credit card debt
• Unsecured personal loans
• Medical bills
• Some collections accounts
• Store credit cards

Typically Not Included

• Mortgages and home equity loans
• Auto loans
• Student loans (federal or private)
• Tax debts
• Child support and alimony
• Payday loans (most won't negotiate)

Typical DMP Terms

Interest Rate Reduction:	From 18-29% down to 0-11% typical
Plan Length:	36-60 months
Setup Fee:	$0 - $75 (one-time)
Monthly Fee:	$0 - $50
Late Fees:	Typically waived
Collection Calls:	Stop once accounts are current on plan

Impact on Your Credit

• Enrolling itself is not reported. DMP status is not a credit bureau field.
• Accounts are closed. Enrolled credit card accounts are closed, which can temporarily lower your score by reducing available credit.
• Late marks if delinquent. If you were late before enrolling, those marks remain.
• Long-term usually positive. On-time payments and declining balances improve credit over the plan.
• No public record. Unlike bankruptcy, DMPs don't appear in court records.

Debt Management Plan vs. Alternatives

Feature	DMP	Debt Settlement	Chapter 13
Reduces principal	No	Yes	Sometimes
Reduces interest	Yes	N/A	Interest stops
Credit impact	Mild	Severe	7 years on report
Stops lawsuits/garnishment	No	No	Yes
Tax on forgiven debt	No	Often yes	No
Public record	No	No	Yes

Who Should Consider a DMP?

Good candidates:

• Primarily unsecured debt (credit cards, medical)
• Steady income but struggling with high interest
• Able to pay all enrolled debts in full within 3-5 years at reduced rates
• Want to avoid bankruptcy's public record
• Committed to closing credit card accounts during the plan

Poor candidates:

• Income too low to pay debts in full, even with reduced interest
• Most debt is secured (mortgage, auto)
• Facing lawsuits, wage garnishment, or foreclosure
• Large tax or student loan debts (not eligible)
• Unable to commit to closing credit cards

How to Enroll in a DMP

1. Choose a reputable nonprofit agency (NFCC or FCAA member, or DOJ-approved)
2. Complete the free budget counseling session
3. Review the proposed DMP, monthly payment, and creditor terms
4. Sign agreement, close enrolled credit card accounts
5. Set up automatic monthly payment to the agency
6. Stay on plan until all enrolled debts are paid in full

Common DMP FAQs

How much can a DMP lower my credit card interest?

Most creditors offering DMP concessions reduce APRs to between 0% and 11%, with typical rates around 6-9%. The exact rate depends on the creditor and your history.

Will I have to close my credit cards?

Enrolled accounts must be closed to new charges. Cards not enrolled can stay open, but many agencies encourage closing them to prevent re-accumulating debt.

Can I leave a DMP early?

Yes. You can cancel at any time and resume paying creditors directly. However, the interest rate concessions typically end, so your payments would rise.

What happens if I miss a DMP payment?

Most agencies allow one or two missed payments before dropping you. Dropped participants typically lose the reduced rate concessions and accounts may revert to original terms or default status.

Is a DMP the same as debt settlement?

No. DMPs pay debts in full at reduced interest through a nonprofit. Debt settlement pays less than full balances through a for-profit company after you stop paying creditors. DMPs are generally safer but slower.

Will a DMP stop a lawsuit or wage garnishment?

No. Only bankruptcy's automatic stay can immediately stop collection actions. If you're already sued or garnished, speak with a bankruptcy attorney before starting a DMP.