What are Debt Management Programs and How Do They Work?

Debt management programs, sometimes called DMPs, are agreed-upon plans between a creditor, debtor, and third-party credit counseling agency to help the debtor reduce their outstanding, unsecured debt—typically credit card debt—usually over a payoff period of about five years.¹ Though somewhat similar to debt settlement or debt relief, debt management programs are managed by non-profit credit counseling agencies, whereas debt settlement companies are often for-profit.

When you enroll in a debt management program, the third-party credit counseling agency will work with you to combine several unsecured debts into one manageable monthly payment.² Unlike debt consolidation in which combined debts are rolled up into one personal loan, debts remain separate in a debt management program but are handled by the credit counseling agency (see more below, in How Do Debt Management Programs Work?).

The credit counseling agency might also try to get creditors to lower your monthly payments, reduce interest rates, or waive certain fees.

Debt management programs do not include secured debts like auto loans or mortgages, and typically don’t include student loan debt, either.³

Find a trustworthy credit counselor. Debt management programs can be pretty straightforward once you find a dependable credit counseling agency that understands your financial situation. But finding a reputable credit counselor can be tricky. According to the Federal Trade Commission (FTC), there are many illegitimate companies looking to scam consumers. Fortunately, the U.S. Department of Justice provides a state-by-state list of approved credit counseling agencies.⁴

Once you’ve found a trustworthy credit counselor, they’ll help you evaluate your financial situation. They might start by helping you make a budget.⁵ They might also ask you to close your credit card accounts to safeguard against accruing more debt while enrolled in the debt management program.⁶

Establish your debt management plan. Your credit counselor might then work with your creditors to lower your monthly payment(s), lower interest rates, or waive certain fees, like late fees or other penalties. If your creditors agree to the proposed debt management plan, your credit counseling organization will change how you pay your bills. Instead of making standard separate monthly payments to each creditor, you’ll make one combined monthly payment to your credit counselor. The credit counselor will then pay your creditors on your behalf.⁷

But take note: even though most credit counseling agencies are non-profit, you may have to pay a monthly fee of about $20-30 for their services. This fee will likely be embedded into your monthly bill.^8,9

You’ll still receive monthly statements from your creditors, and it’s a good idea to review them or to check in with your creditors from time to time to make sure your credit counselor is upholding the agreement.¹⁰

Being enrolled in a debt management program itself won’t affect your credit score. But being enrolled can affect other aspects of your credit, thereby affecting your credit score.

For example, closing credit card accounts or settling your accounts for less than the full amount owed can both have negative effects on your credit score. But for many people in debt, managing that debt—even with the risk of negatively impacting their credit score—may be a better alternative to declaring bankruptcy, which can cause your credit score to fall as much as 200 points and will stay on your credit report for up to 10 years.^11,12

Credit counseling agencies can do more than help you develop and follow a debt management plan. Since counselors are typically certified and trained in areas relating to consumer credit, debt management, and budgeting, they may be able to help you:¹³

• Create a personalized, workable budget.
• Improve your money management skills.
• Obtain free financial educational materials.
• Get a free copy of your credit report. 

Despite the possibility of a fee, mentioned above, non-profit credit counseling services are often offered free of charge, regardless of whether or not you choose to enroll in a debt management program.

What are the disadvantages of enrolling in a debt management program?

• Finding a reputable agency can be risky.
• You might have to close your credit card accounts.
• It could negatively impact your credit score.
• Not all creditors accept debt management programs. 

Can I buy a house while on a debt management plan?

Yes, but it might be difficult to qualify for a conventional mortgage. Mortgage lenders usually look at your income, employment history, and credit report—not whether you’re on a debt management plan.¹⁴

Can I get a credit card while on a debt management plan?

Possibly, but it might not be a good idea since you often have to close your credit card accounts while on a debt management plan anyway.

Can I keep my car on a debt management plan?

Yes! Credit cards are usually the main thing you might have to eliminate. You may even be able to apply for a car loan since most of these loans are secured loans (with the car as collateral). Separately, though, since debt management is also about improving your spending habits, it might be a good idea to closely examine the wisdom of that purchase.