What’s a Debt Management Plan?

In past articles I’ve discussed debt consolidation through bill consolidation, home equity loan and credit card balance transfers.  Another option is to enter into a Debt Management Plan (DMP), which is a plan managed by a third party company, which can be a for-profit or non-profit company.   This company assesses your ability to pay and what you owe.

Debt management providers renegotiate interest rates, fees and payments with lenders.  For-profit companies charge a fee for this service; some non-profits offer free services, while others charge for it. A DMP is not for individuals whose financial situation will not improve in the near future, but likely are for people who have consistent income.

You have to be aware of scammers that take your money and do nothing, which includes not paying your creditors.  Research any so-called DMP provider for complaints, verify their license, check the contract you sign, and contact your creditors to verify that they have accepted the DMPs facilitated by that particular provider.  Make sure to pay on time, check your monthly statement to make sure all creditors were paid, and contact the organization handling your DMP if you can’t make payments.  And, if you want to forgo most of this, then choose a member organization of the National Foundation for Credit Counseling.


  • Single monthly payment
  • Lower monthly payment
  • Late fees and taxes are waived
  • Third party negotiates the loan with your creditors
  • No longer contacted by collectors
  • Regain credit quicker
  • Can combine unsecured debts such as credit card, personal loans and student loans
  • Fixed rates
  • You exit the program with solid credit scores


  • May be charged a fee for the service
  • Cannot be used for secured loans such as car and home
  • Beware of scams
  • If default on payments, the charges waived will return
  • Can’t use your credit cards that were consolidated
  • Cannot apply for new credit
  • Don’t have control of your payments
  • No guarantee that your creditors will accept the reduced payments and/or freeze future interest payments
  • Can take years to complete

When you are having difficulty paying your bills, you need to look at all your options. If you can’t negotiate with your creditors on your own, DMP may be something to consider if you can find a reputable service for no fee.  One of the best places to start is non-profit consumer credit counseling.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.


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