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Sky-high inflation, turbulent markets and ballooning interest rates have made life tough for consumers. To wit: Half of Americans reported that they are financially worse off now compared to last year, according to a recent Gallup poll. 

Debtholders, thanks to higher borrowing costs, have had it particularly rough. If your red ink has become overwhelming, one option to consider is a debt management plan (DMP). 

What is debt management?

In a debt management plan (DMP), clients work with a consumer credit counseling agency to come up with a repayment plan and follow through on it.  

“We also work with your creditors to lower interest rates, waive or eliminate fees and stop collection calls,” said Tayri Martinez-Orza, a quality assurance specialist at GreenPath Financial Wellness, a nonprofit financial counseling service. 

If the creditor is willing to negotiate, “clients end up saving money on interest and getting out of debt sooner because more of the payment goes toward reducing the principal balance,” Martinez-Orza said.

Who would need a debt management plan?

A debt management plan is best for people who are stressed about their obligations, but aren’t yet in dire straits. If you have a pile of debt built up, are struggling to make payments and starting to fall behind, it might be for you. 

“DMPs are generally best for those facing a less-severe financial hardship,” said Sean Fox, president of Achieve Debt Resolution, a personal financial services company.

If you are several months behind on all of your payments, and getting regular calls from debt collectors, you might benefit from a DMP.

How debt management works

Think of the DMP itself as a roadmap, crafted in consultation with a credit counselor, that will help you work down unsecured debt, such as credit cards, as cheaply and quickly as possible.

Your debt management counselor negotiates with your creditors to reduce fees and interest rates, then helps you to both create the plan and stick with it. In many cases, you’ll make one payment to the agency, which will then pay your creditors on your behalf. You do not open a new loan or take on more debt. In fact, the accounts in debt may be closed. 

A plan with a non-profit provider will likely come with a free initial consultation, but you’ll likely have to pay a fee for the service. (National rates are capped at $79, but some states have lower limits.)  Beware for-profit providers, and make sure to avoid credit counselors that charge exorbitant fees. The Consumer Financial Protection Bureau (CFPB) recommends you receive a fee quote in writing. 

You will need discipline, though, to succeed. Most plans are three-to-five years long, and only work if you keep up with your payments. 

Pros of a debt management plan

Setting a goal and getting a professional on your side can help you to see a light at the end of the tunnel of debt.

Lower interest rates and fees

If your creditors agree to work with your debt counselor, you could get a lower interest rate and cancel or, perhaps, stop incurring fees. Your creditors may agree to lower rates or fees because you’ve made a concerted effort to pay them back. The debt is unsecured, after all, and they may receive less if you ultimately declare bankruptcy

Stop collection calls

With a DMP in place and money being paid, your creditors may stop contacting you and causing you stress. 

Whether you have a DMP or not, you have the right to tell a debt collector to cease communicating with you based on the Fair Debt Collection Practices Act (FDCPA).

If you are dealing with constant calls, follow these steps outlined by the CFPB:

  • Identify who the creditor is, including their address and phone number.
  • Find out how much is owed, including any fees, interest or collection costs.
  • Ask when the debt was incurred and for what purpose.
  • Determine the name of the original creditor.
  • Make sure it is you, and not someone else, who owes the debt.

Work with a non-profit organization

You work with a credit counseling agency to craft a DMP. They are not-for-profit organizations and their goal is to assist consumers. Other debt solutions require you to work with for-profit businesses like lawyer firms and debt settlement companies. 

Nonprofits typically charge fewer fees than for-profit businesses. Search the or to find a counselor that fits your needs. 

A single payment

One of the biggest benefits of a debt management plan is that you could get a streamlined, single payment.

A single payment can help you save money, as you’re less likely to miss a payment, incur late fees and face mounting interest. Moreover, the simplicity of dealing with one monthly payment, rather than several, will make your finances easier to manage. 

A financial road map 

The payment schedule sets a goal for you to reach and tells you how to get there. It provides a timeframe and you can see when you’ll eliminate your debt. 

A DMP, with a payment due each month, will hold your fee to the fire, and make it less likely that you delay your debt payments. 

A chance to improve your credit

The largest factor used to calculate your FICO credit score is payment history (35%), followed by amounts owed (30%), length of credit history (15%), credit mix (10%) and new credit (10%). 

“Making those timely payments will typically improve your credit over time,” said Martinez-Orza.

You might also be able to re-age your credit accounts, changing their status to current, then your DMP payments will be recorded as one-time, and thereby incrementally improving your credit.

However, if your credit cards are closed, then your credit utilization may rise, which could negatively affect your credit.

Regardless, you need to take the longview: working down your debt will help your score in the long run.

Cons of a debt management plan

A DMP isn’t always the answer and following through on one might not be easy. 

It’s not debt elimination 

It’s important to note that DMP doesn’t erase debt; you will still be paying it off. This can cause challenges if you’re not prepared.

“In many cases, consumers attempt a debt management plan, but eventually wind up filing bankruptcy because they can’t afford the payments,” said Fox.

Unsecured debt only

A DMP only applies to what you owe from credit cards, personal loans and other such unsecured debt. It doesn’t apply to things like mortgages and car loans.

Creditors have to agree

The businesses and people you owe money to don’t have to agree to waive fees or charge less interest. In most cases, they’re under no legal obligation to work with you and have the right to refuse to accept less money.

There are likely fees

You may need to pay the debt counseling agency that administers your plan. 

“DMP fees vary based on your state of residence and debt amount,” says Martinez-Orza. For example, her agency charges a one-time set up fee and a monthly fee. 

However, these fees could be minimal considering the amount of money you can save in reduced interest charges, waived fees and in preventing future financial problems. 

No new lines of credit

Enrolling in a plan can also limit your ability to access ongoing credit. You typically aren’t able to take out a new home loan or car loan while you have a DMP. 

Also credit cards enrolled in the plan will be closed as you pay them off, “although most creditors will usually allow you to use one credit card for emergencies,” Martinez-Orza said. 

Debt management vs. debt consolidation 

Debt management and debt consolidation have the same aims – to help you simplify your finances, reduce what you owe, stop collection calls and set you up for success. However, they differ in how they accomplish those goals and are better for different people. 

In debt consolidation, you take out one new loan and use it to pay off all (or most) of your other debt that has higher interest rates. You then make monthly payments on the debt consolidation loan until it’s paid off. 

Debt consolidation makes sense if you can both secure a lower interest rate than what you owe on your credit cards, and receive a big enough credit line. 

The average credit card interest rate in March, 2023 was 24.10%, whereas the best debt consolidation loans have rates ranging from 6.99% to 35.97%.  

Debt management vs. debt settlement

With a debt management plan you work with a trusted non-profit credit counseling agency to pay back all debt. By contrast, in a debt settlement situation, you work with a for-profit company and ultimately pay less than what you owe. 

Debt settlement can severely impact your credit, you will and debt settlement companies charge fees that range from 15% to 25% of your enrolled debt.

Alternatives to debt management

It’s important to select the debt relief strategy that works for you. Each of these options have their own pros and cons that you should consider carefully before committing.

  • See if you’re eligible for hardship assistance. Many creditors and have options for people who are facing financial hardship. 
  • Get financial counseling. You can talk with a credit counselor and get help without signing up for a DMP. 
  • Do a balance transfer. Rather than keeping your credit card debt in an account that’s charging interest, transfer it to a credit card that has no interest or low interest. Here are the best 0% intro APR credit cards
  • Use a debt payback method. To structure your finances, you can adopt a proven plan to attack debt with the snowball method.
  • Consider debt settlement. If things are looking bad and your credit score is already doomed, debt settlement might have more pros than cons. 
  • Look at bankruptcy. If things are really bad and there’s no feasible way out of debt, bankruptcy might be the answer. Be aware though that you must qualify for it and it’s not an easy solution. 

Frequently asked questions (FAQs)

Yes, you can work directly with your creditors to request lower interest rates and waived fees. However, credit counselors typically have a better sense of the system’s ins and outs and have established relationships with creditors, which can provide a large benefit. Plus you’d be responsible for making on-time payments to multiple creditors.

A debt relief program could help you lower your debt, waive fees, stop collection calls, lower your interest rate and consolidate your payments into one payment. Ultimately, it should help you improve your credit score as well.

The specific drawbacks depend on the type of program you use, but can include the facts that many programs provided by third parties charge fees and that sticking with a payment plan over a period of years can be hard. Some programs don’t allow you to take out any new loans during this time and debt cancellation can be expensive with fees and taxes.

You want to be careful not to be taken advantage of by debt management scams. Martinez-Orza cited some telltale signs of a company to watch out for:

  • They guarantee they will reduce or cancel your debt.
  • You must pay in advance of them accepting your case or successfully negotiating a settlement.
  • They insist you use an intermediary.
  • They ask you to stop working with your creditors.

To identify a legitimate, reputable nonprofit credit counseling agency, check if the agency is accredited by the and a member of the. You should also check their ratings by the Better Business Bureau (BBB).

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Cathie Ericson is an Oregon-based freelance writer who covers personal finance, real estate and education, among other topics. Her work has appeared in a wide range of publications and websites, including U.S. News & World Report, MSN, Business Insider, Yahoo Finance, Market Watch, Fast Company, Realtor.com and more.

Jenn Jones


Jenn Jones is the deputy editor for banking at ӣƵ Blueprint. She brings years of writing and analytical skills to bear, as she was previously a senior writer at LendingTree, a finance manager at World Car dealerships and an editor at Standard & Poor’s Capital IQ. Her work has been featured on MSN, F&I Magazine and Automotive News. She holds a B.S. in commerce from the University of Virginia.