What is a Debt Management Plan?

Debt that never seems to shrink can be a constant source of stress. If keeping track of due dates, interest charges and different account balances is starting to feel like a full-time job, a debt management plan (DMP) is one of several solutions you might consider. With a DMP, you work with a nonprofit credit counselor to make a long-term plan for repaying debt that can feel unmanageable or overwhelming. Let's learn more about what DMPs are and how they work, along with some other alternatives to help you cope with your debt.

What is a debt management plan (DMP)?

A DMP is a structured repayment program typically set up through a nonprofit credit counseling agency to help a consumer repay their debts over time. You can generally only use a DMP with certain types of unsecured debts, such as credit cards or some personal loans. Paying down your balances with a DMP usually takes between three and five years.¹

DMPs are different from debt consolidation, by which you pay off multiple high-interest debts at once with a personal loan or credit card balance transfer, ideally with a lower interest rate. It’s also different from debt settlement, which involves attempting to negotiate an agreement by which the creditor will accept payment that is less than the debt the borrower owes. Instead, a DMP typically calls for repaying the borrower’s full debt but under revised terms that the creditor agrees to.

How does a debt management plan work?

Typically, a DMP is arranged and managed by a nonprofit credit counseling agency certified by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).

After you enroll in a plan, a credit counselor will contact your creditors to notify them you are in a DMP and that they will be the payer on your account. They may also attempt to negotiate better terms with the creditor, such as a lower interest rate or monthly payment amount, with your creditors. Then, instead of paying your creditors directly every month, you’ll pay the credit counseling agency, who pays the creditors on your behalf.²

Your credit counselor will likely instruct you to close your credit card accounts and avoid opening any new ones while you complete your DMP.

If you’re working with a reputable credit counselor, the agency will be clear about its fees upfront and won’t charge you before providing services.³ To find a reputable agency, check the list of approved credit counseling organizations from the U.S. Trustee Program of the U.S. Department of Justice. If you are a OneMain customer, OneMain can help you connect with a Certified Nonprofit Credit Counselor.

How do you repay debt with a debt management plan?

When you make your monthly payment to the credit counseling agency, the agency will divide your payment according to the plan’s terms and send the appropriate share to each creditor. Making your payments on time can help you stay on track with the repayment agreements on the accounts you’re paying off.⁴

Is a debt management plan a good idea?

While a certified credit counselor can give you support and guidance, only you can decide whether a DMP is appropriate for your situation. Here are some pros and cons to consider:

Pros

If any of the following appeal to you, a DMP could be an option for you.

• One due date: You’ll repay all of your enrolled debts through a single monthly payment made to the credit counseling agency.
• Potential reduction of interest or fees: Some creditors may agree to reduce your interest rate, waive fees or lower your monthly payment when you’re enrolled in a DMP.⁵
• Clear finish line: You’ll know from the beginning when you can expect to pay off your debt in full.

Cons

Before enrolling in a DMP, consider these factors:

• Losing access to credit cards: It’s likely you’ll be required to close the credit card accounts covered by the plan.⁶
• Program fees: Credit counseling agencies, including nonprofit agencies, may charge fees to set up and manage a DMP.
• Limited eligibility: Only certain types of debts and participating creditors can be included. Secured debts, like mortgages, some personal loans and student loans don’t typically qualify for a DMP.⁷

How does a debt management plan affect your credit score?

A DMP can affect your credit score in a few different ways.

Closing credit card accounts, which is typically required when you enroll, may cause your credit score to dip initially. This happens because closing accounts can affect your credit utilization ratio — the percentage of available credit you're using — and reduce the length of your credit history.

That said, making consistent on-time payments is how you build a positive payment history, which could help your credit score improve over time. Repaying your debt in full may also help you re-establish credit going forward.⁸

Alternatives to debt management plans

If you want to find a new way to manage what could be overwhelming debt, a DMP may be an option, but it's not your only one. Depending on your situation, you might consider one of the following alternatives.

Debt consolidation loan

A debt consolidation loan is a personal loan that you can use to pay off multiple debts at once. Then you repay the new loan in installments over time. A debt consolidation loan usually has a fixed interest rate and predictable monthly payments, giving you just one monthly payment to manage and a clear path to payoff. As long as you always make your payments on time, you'll know exactly when you'll pay the loan off.

A debt consolidation loan may help you lower your total monthly payments. The total amount you’ll repay over time, however, will be affected by the loan term, interest rate and any fees your new lender charges. For example, if you choose a longer repayment term to lower your monthly amount, you may pay more interest than you would with a shorter repayment term and higher monthly payments.

Credit card balance transfer

You may be able to move existing debt to a credit card offering a low or 0% introductory or promotional annual percentage rate (APR) for a set period. A balance transfer offer period lasts at least six months by law, with 12-18 months being the most common length offered by major credit card companies.⁹ Once the promotional offer period ends, the remaining balance will start accruing interest at the card’s regular, non-promotional APR, so it’s a good idea to have a clear plan to pay off the transferred balance before choosing this option.

It’s important to be aware that the card issuer may charge a balance transfer fee of 3-5% of the amount you transfer.¹⁰ There’s also no guarantee that you’ll get approved for a transfer limit high enough to cover all of your balances.

Debt snowball and debt avalanche repayment methods

If you'd prefer to create your own plan for repaying your debt, two well-known DIY strategies are the debt snowball method and the debt avalanche method.

• Debt snowball method: Begin by listing your debts from smallest to largest and focus extra payments on the smallest balance first. By focusing on quick wins, you build momentum you need to tackle larger debts.
• Debt avalanche method: To start, organize your debts from the highest APR to the smallest. Next, pay as much extra as you can each month toward the debt with the highest APR. Once that debt is paid off, move on to the debt with the next highest APR. Repeat the process until you’ve paid off all your debt. Depending on your debts and their APRs, this approach could help you save significantly on interest.

If you choose to use either of these methods, you must continue making at least the minimum monthly payment on all of your accounts to avoid late fees and missed payments.

Debt settlement

Debt settlement is an attempt to reduce how much you owe. It’s a risky strategy that can possibly leave you worse off financially than you were before. With debt settlement, you or a debt settlement agency (DSA) attempt to negotiate with your creditors to persuade them to accept less than you owe.

DSAs are different from credit counselors in several important ways. While credit counseling agencies are typically nonprofits that charge modest fees, DSAs tend to be for-profit companies that charge high fees — often a percentage of the debt settled. When you use a credit counselor, you continue paying your creditors as agreed. When you use a DSA, you may be asked to stop paying your creditors during the negotiation process and instead make monthly payments into a special bank account, called a “trust account.” Those payments are held back from your creditors until an agreement is reached.

Debt settlement can have serious financial consequences. There’s no guarantee that you or the DSA will be successful, and hiring a DSA may leave you in deeper debt than when you started. Withholding payments, even as part of a debt settlement process, could cause your accounts to go to collections or lead to lawsuits, and it could significantly damage your credit score. Settling debts will also have a negative impact on your credit score and affect your ability to get credit in the future. And you’ll likely owe income tax on the part of your debt that’s forgiven by the creditor.¹¹

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Clearing the path to payoff

Whether you choose to enroll in a debt management plan or pursue a different method of debt relief, having a clear plan can make dealing with debt more achievable. Understanding your options and choosing what makes the most sense for your budget can also help you feel more in control and stay committed to your debt payoff plan.

Sources

1 https://www.nfcc.org/blog/which-debt-repayment-method-is-right-for-you/
2 https://fcaa.org/debt-management-plan/
3 https://consumer.ftc.gov/consumer-alerts/2026/03/looking-debt-relief-heres-how-avoid-scam
4, 5, 8 https://www.nfcc.org/resources/debt-management-plans/
6, 7 https://fcaa.org/2024/02/06/debt-relief-options-which-is-right-for-you/
9 https://www2.helpwithmybank.gov/help-topics/credit-cards/balance-transfers/balance-transfer-promo-rate.html
10 https://www.experian.com/blogs/ask-experian/should-i-get-a-balance-transfer-card-or-debt-consolidation-loan/
11 https://www.nfcc.org/blog/which-debt-repayment-method-is-right-for-you-a-closer-look-at-debt-settlement/