A debt management plan can help some people repay unsecured debts through a credit counseling agency. Under this type of plan, a counselor helps set up one monthly payment, then use that money to pay the creditors included in the plan. Creditors may agree to lower interest rates or waive certain fees, according to the Federal Trade Commission.
But a debt management plan doesn’t solve every debt problem. Credit counselors can’t erase debts and don’t always negotiate reductions in the amount owed. A successful debt management plan also requires regular, timely payments and can take 48 months or more to complete.
That matters because a long repayment plan may not fit every budget. If your income changes, expenses rise, or the monthly payment is still too high, it may be hard to stay on the plan long enough to finish. Before signing up, it helps to understand how debt management plans work, what they can and cannot do, and when it may make sense to compare other debt relief options.
What Is a Debt Management Plan?
A debt management plan, or DMP, is a repayment plan set up through a credit counseling agency. It’s often used for unsecured debts, such as credit cards, medical bills, or some student loans. DMPs are not for secured debts tied to collateral, such as a house or car.
In a DMP, the counselor reviews your finances, works with you and your creditors on a payment schedule, and collects one monthly payment from you. The agency then sends payments to the creditors included in the plan. Creditors may agree to lower interest rates or waive certain fees.
A DMP is different from debt settlement. The Consumer Financial Protection Bureau says credit counselors can’t erase your debts and don’t always negotiate reductions in the amount you owe. Instead, a DMP usually focuses on making repayment more manageable through payment terms, interest rate changes, or fee reductions.
If your main problem is high interest, a DMP may help. If your main problem is that you can’t afford to repay the full balance, even over time, a DMP may not solve the issue.
What Does the Data Say About DMP Completion?
Public data on debt management plan completion is limited. There doesn’t appear to be one current national completion rate that applies to all DMPs. The numbers that are public often come from specific agencies, older reports, or sources that count outcomes in different ways.
For example, Fox Business reported on an older poll of National Foundation for Credit Counseling member agencies. The article said 21% of repayment plans that ended in 2002 were completed, while another 21% of participants left to finish paying on their own. The same report said 51% dropped out or filed for bankruptcy.
Agency-specific data can look different. In a Cambridge Credit Counseling report, 37.9% of clients who enrolled in a DMP during the first half of 2008 completed the full term of the program. Another 11.9% were still active or more than halfway complete, while 50.2% were incomplete.
These numbers show that outcomes can vary by agency, year, client situation, and how completion is measured. A fair takeaway is that DMPs can help some people finish repayment, but a meaningful share of people may leave before completing the plan.
Why Do Some People Leave DMPs Before Finishing?
People may leave a debt management plan for many reasons. DMPs can take three to five years to complete, and a lot can change in those years. A person may lose income, face a medical bill, move, get divorced, need car repairs, or have other expenses that make the payment harder to keep up with.
The monthly payment can also be hard to manage. In a Cambridge Credit Counseling report, the agency said the next biggest reason clients left, after giving no reason, was that they couldn’t afford even the reduced DMP payment.
Creditor participation can also affect how long someone stays in a plan. Cambridge also found that clients with one denied creditor proposal early in the program made four fewer payments, on average, than clients with no denied proposals.
Fees and credit limits can add more pressure. The FTC warns that nonprofit status doesn’t always mean a service is free or affordable. The FTC also says people in a DMP may have to agree not to apply for or use more credit until the plan is done.
When Might a DMP Be a Good Fit?
A debt management plan may work well for someone who:
- Has steady income and can afford the monthly payment
- Has mainly unsecured debt
- Is primarily concerned with lowering high interest or fees
- Has creditors who agree to the plan
Before starting a DMP, ask the counselor to explain the payment, fees, timeline, and creditor terms in writing. A DMP may help if the plan gives you a realistic way to repay your included debts without falling behind on basic living costs.
When Might a DMP Not Be Enough?
A debt management plan may not be enough if:
- The monthly payment still doesn’t fit your budget
- You need to reduce the amount you owe
- Your creditors don’t participate
- Much of your debt is secured
If a DMP does not match your needs, it may be worth comparing other options. These may include debt settlement, debt consolidation, bankruptcy, or legal aid.
Questions to Ask Before Starting a DMP
Before starting a debt management plan, ask the credit counseling agency to explain the terms in writing. A DMP can affect your monthly budget, credit accounts, and repayment timeline for several years, so it is important to understand how the plan works before you enroll.
Before signing up, ask:
- Which debts are included in the plan?
- Which debts are not included?
- How is my monthly payment calculated?
- What will my monthly payment be?
- Could my payment change?
- What fees will I pay?
- What happens if the payment is more than I can afford?
- How long will the plan take?
- Have my creditors accepted the plan?
- What happens if one creditor does not participate?
- What happens if I miss a payment?
- Will I have to close any credit card accounts?
- Am I allowed to use credit while enrolled?
- Am I allowed to apply for new credit while enrolled?
- Does this plan reduce the amount I owe?
- Does this plan only change my repayment terms?
A DMP may be worth considering if the answers are clear and the payment fits your budget. If the answers are unclear, or the payment does not seem realistic, compare other forms of debt relief before you commit.
How Do DMPs Compare With Other Debt Relief Options?
A debt management plan is one way to deal with debt, but it’s not the only option. The right path depends on your debt type, income, payment ability, credit situation, and long-term goals.
Here is a general comparison:
| Option | What It May Help With |
|---|---|
| Debt management plan | A DMP may help lower interest rates, waive certain fees, and organize unsecured debt into one monthly payment through a credit counseling agency. |
| Debt settlement | Debt settlement may help some people resolve certain debts for less than the full amount owed. |
| Debt consolidation loan | A consolidation loan may combine several debts into one loan with one monthly payment. |
| Bankruptcy | Bankruptcy is a legal process that may help people who can’t afford to repay certain debts. |
A DMP may be a good fit if you can afford the payment and want help repaying included debts over time. Debt settlement, consolidation, or bankruptcy may be worth comparing if a DMP doesn’t match your budget or debt situation. Keep in mind that creditors aren’t required to accept settlement offers, and results vary from person to person.
The Bottom Line
A debt management plan can help some people repay unsecured debt, especially when high interest or fees are the main problem. But a DMP may not work for every budget or every type of debt. The payment must be affordable, creditors must agree to the plan, and the timeline can last several years.
Before starting a DMP, make sure you understand what the plan does and does not do. Ask whether the plan lowers the amount you owe, how long repayment may take, what fees apply, and what happens if your income changes.
If a DMP doesn’t seem realistic for your situation, you may want to compare other debt relief options. National Debt Relief can help you learn whether debt settlement may be an option for your eligible unsecured debts. Get started today to explore your options.
