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Should You Use A Debt Management Plan (DMP)?

Miranda Crace6-minute read
UPDATED: June 02, 2024


The average American household has over $155,000 in debt expenses, according to CNBC. This astonishing amount includes both unsecured and secured debts. So, if you’re struggling with debt, you’re not alone, and you fortunately have a variety of relief options to choose from.

One such solution is a debt management plan. Let’s take a close-up look at this type of repayment method, how it works and its benefits and drawbacks. 

What Is A Debt Management Plan?

A debt management plan – also referred to as a DMP – is a method consumers use to pay off high-interest unsecured debt. Using a credit counseling service, borrowers may be able to reduce their interest rate while making a single monthly payment for 4 – 5 years.

A debt management plan isn’t a debt consolidation loan or a form of debt settlement. With a DMP, you’ll have to pay the entire amount you owe; however, you might not have to pay late fees or other penalties.

Simply put, a DMP is a budget you can use to streamline your monthly debt payments with the help of a credit counselor.

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How Does A Debt Management Plan Work?

Before you can get started on your DMP, a credit counselor will do a comprehensive assessment of your financial situation. After totaling up your debt, income and routine expenses, your counselor will help you create a monthly budget and calculate how much you can afford to pay toward your debts.

Once your DMP is in place, you’ll make a single monthly payment to your counseling service. Your counselor will be responsible for dividing your payment among your creditors and making on-time installments. The counseling service may also help you negotiate a lower interest rate and convince your creditors to waive fees while you’re using the DMP – both of which can make your monthly payments more affordable.

For example, let’s say you have outstanding balances on three credit cards and a personal loan. While using your DMP, you’ll make one payment instead of four. Your credit card interest rate might even be reduced to 8% instead of your usual 16%. Maybe your credit card companies also agreed to waive the late fees you incurred before using the DMP.

Where Can You Get A Debt Management Plan?

For-profit credit counselors and nonprofit groups are the two types of organizations that offer DMPs. Your decision on which type of counseling service to use will depend on your personal situation and needs. However, it could be beneficial to thoroughly research both options.

For-Profit Agencies

For-profit debt relief companies offer a wide range of services, including DMPs. Most of these businesses charge affordable fees and are transparent about their pricing. But keep in mind: You might be asked to sign a payment agreement before receiving your DMP.

If you choose to work with a for-profit debt management company, ensure that the representative you’re paired with is appropriately licensed. You can also look for positive reviews from previous clients.

Nonprofit Organizations

Most DMPs are conducted through a nonprofit credit counseling organization. These groups are usually the most reliable and are certified through the National Foundation for Credit Counseling (NFCC).

Even though the services of a nonprofit credit counseling agency are free, you should still research this option. You can verify an agency’s legitimacy by checking to see if it’s licensed in your state, or by asking for additional information about its DMPs.

The Pros And Cons Of A Debt Management Plan

As with any form of debt relief, DMPs come with both advantages and disadvantages you should consider before enrolling. While DMPs can be beneficial for borrowers with a substantial amount of unsecured debt, they’re not the right choice for everyone.


If you decide to use a DMP, you can take advantage of the following benefits:

  • You’ll only have to make a single monthly payment.
  • You could get a better interest rate if your creditors agree to the plan.
  • You’ll receive financial advice from a certified credit counselor.
  • You could reduce the negative impact on your credit score since you’ll be making on-time payments.
  • You could avoid your accounts being sold to collection agencies.
  • You might be able to speed up the repayment process.
  • Your creditors may agree to reduce or remove your late fees or other charges.


Unfortunately, if you use a DMP, you might also experience these drawbacks:

  • Your secured debts, such as a mortgage or auto loan, won’t qualify for your DMP.
  • Some types of unsecured debt, like student loans, also won’t qualify for a DMP.
  • If you miss a monthly payment, your lower interest rate may be withdrawn.
  • It could take up to 5 years to get all of your unsecured debts paid off.
  • Not all creditors will agree to participate with your DMP.
  • You’ll have to pay monthly fees if you work with a for-profit company.

Debt Management Plan Alternatives

Although DMPs can be used for most unsecured debts, your secured debts won’t be included in the monthly payment. You can consider using the following options instead.

Debt Consolidation Loan

Similar to a DMP, a personal loan can be used to consolidate your debt into a single monthly payment. Personal loans have fairly strict credit score and income requirements, so it may be difficult to secure approval if your credit report shows a lot of missed payments or your debt-to-income ratio is too high.

Balance Transfer Card

You can use a balance transfer to combine multiple credit card debts onto a new credit card that may come with an introductory annual percentage rate (APR) of 0%. This promotion only lasts for a short period, however, so if you choose to use a balance transfer, make sure you can pay off your debt before the 0% APR period expires.

Debt Settlement

Debt settlement is another approach that consumers can use to get out of debt. With this option, a debt settlement company negotiates with your lenders to get them to agree to a lump-sum payment, typically for an amount smaller than what you owe. Debt settlement can be risky, though, because most companies require borrowers to stop making payments until an agreement is reached.

DIY Repayment Plan

If you like the idea of a DMP but want a do-it-yourself approach, you can always create a repayment plan. Many strategies exist for paying off debt, but we’ll cover the two most common ones: the avalanche strategy and the snowball method.

Avalanche Strategy

The avalanche strategy recommends that you pay off your debt with the highest interest rates first. This approach helps you save money on interest and can help you carry momentum as you get rid of more debt. Even so, some people struggle with the avalanche method and may revert back to making minimum payments while racking up more debt along the way.

Snowball Method

The exact opposite of the avalanche strategy, the snowball method encourages borrowers to pay off their smallest debts first. Over time, the excitement of getting rid of outstanding debts can help you stay motivated to complete your goal, but you might end up paying more interest with this approach.

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Debt Management Plan FAQs

Still not sure if a DMP is right for you? Learn more with the answers to these common questions.

What is debt management?

Debt management refers to the method of repaying debt with careful budgeting. A DMP encapsulates this thinking into an actionable strategy that consumers can use to become debt-free.

Are debt management plans a good idea?

DMPs can be an excellent option for people with substantial unsecured debt. If you’re confident you can pay off your debt within 5 years, a DMP could work for you. If not, you may want to consider other options.

Can my creditors refuse my debt management plan?

Yes, your creditors don’t have to agree to your DMP, although most usually do. They could refuse to give you a lower interest rate or change your terms. If your lender declines to participate in your DMP, you might want to discuss alternative approaches with your counselor.

How much does it cost to enroll in a debt management plan?

If you use for-profit financial counseling, you could have a one-time fee for the initial appointment and a smaller maintenance fee for each credit account that’s paid monthly. However, if you’re facing hardship, the agency may waive your fees. 

Can I cancel my debt management plan?

Yes, you can cancel a DMP at any time, but don’t forget that you’ll need to manage your monthly payments moving forward. 

Can a debt management plan affect my credit score?

Implementing a debt management plan can affect your credit score positively or negatively, depending on your situation. If you close credit accounts after paying off your balance with the DMP, you might see your score decrease. On the other hand, if you use your plan to make on-time payments and eventually get out of debt, your credit score will most likely increase. 

Final Thoughts

DMPs aren’t the right debt relief option for everyone, but if you have unsecured debts such as personal loans, credit cards or personal lines of credit, a DMP could help you repay what you owe.

If you want to consolidate your debts instead, you can apply for a personal loan with Rocket LoansSM.

Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.