September 15, 2021

Everything You Need to Know About Using a Debt Management Program

What's a debt management program, who's it for, and if it's right for you. Here's everything you need to know about DMP's

18 min read

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Right now, many people find themselves with challenging debt problems. The pandemic, job losses, inflation, child care, and other reasons are causing economic hardships and contributing to a rise in credit card debt for a large portion of the U.S population.

Sixty-two percent of credit card holders may miss some or all of their monthly payments, according to a recent poll by Others are already behind on their accounts or are currently in collections. Consumers need to regain control of their financial future, which starts with getting out of credit card debt.

If you’re having trouble paying off debt on your own, a debt management program may be the solution you need.  The program combines all your bills into one affordable monthly payment and lowers your interest rates.

What is a Debt Management Program?

A Debt Management Program or Debt Management Plan, often called a DMP, is a structured agreement between debtors (people who owe money on credit cards or other loans) and their creditors. The program reduces or eliminates interest rates and stops penalties. This program allows people to pay off their debt faster because they focus on paying off their balances instead of paying interest charges. The total monthly payment is often lower, too.

You enroll in the program through a nonprofit consumer credit counseling service.   At the end of the program, all the credit cards you included in the program will be paid in full. The process takes three to five years, on average, but varies depending on the amount of debt you have to pay off and your budget.

Average time to pay-off: 36-60 payments

Amount of principal repaid: 100% (paid in-full)

Average negotiated interest rates: 0-11%

Total credit card payment reduction: 30-50%

Average fees: $49

Effect on credit: Generally positive or neutral

Works best for: Credit card debt still with the original creditor

Other types of debt you can include: Debt collections, Medical bills, Payday loans, Unsecured personal loans, Credit card debt consolidation loans

How a nonprofit debt management plan works

Nonprofit consumer credit counseling agencies carefully consider debtors’ needs and abilities. They contact creditors to see what terms they will accept and facilitate payments. The process is done to benefit the consumer, who enjoys lower interest rates and no penalties. The consumer will now only make one payment per month to satisfy all of the creditors who agree.

Consumers can pay back the debt much faster with this method. The time frame is typically three to five years. After paying back the debt, you can re-establish credit or establish new credit on favorable terms.

Here is what the process looks like step-by-step:

  1. A certified credit counselor reviews your debt and budget in a free evaluation.
  2. You work together to find a monthly payment you can afford.
  3. Then the credit counseling team contacts your creditors to get the best terms possible.
  4. Your creditors must agree to accept payments through the program.
  5. They also agree to reduce or eliminate interest and stop penalties from being applied to your balance.
  6. You pay one monthly payment that covers all the debts you included in the program.
  7. You save on interest and have an exact timetable of when you’ll be debt-free.
  8. You graduate from the program better enabled and without most unsecured debt.
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Comparing debt management program pros and cons

For most people with credit card debt, a DMP will be a positive course of action—especially for those that have fair or bad credit. You’ll wind up being able to pay off the entire debt much quicker than you would on your own and start saving for emergencies and life goals. While you can’t use the program for taxes or student loans, you may be able to combine medical and other unsecured debt into the program.

Debt management plan pros

  • One payment a month.
  • Reduced interest rates.
  • Quick payment time.
  • Start saving again.
  • No more collection calls.
  • An exact timetable for paying off debt.
  • Build positive credit history.
  • Bring past-due accounts current faster (most creditors do this after 3 payments).

Debt management plan cons

  • Any credit cards enrolled in the program will be frozen.
  • Your credit cards will be closed as they get paid off.
  • Closed credit accounts can hurt your credit.
  • You can’t apply for new credit cards while you’re enrolled.
  • If creditors don’t agree to the program, those will still be separate bills.
  • You can’t include secured debts (mortgages/car loans), student loans, or back taxes.
  • No missing payments! If you miss any payments, the program could get canceled, although you can contact the credit counseling agency to work something out.

Other debts can be included in a non-profit debt management program

In this article, we’ve mostly talked about credit card debt. A DMP (debt management program) works exceptionally well with credit card debt that is still with the original creditors. It can also work with credit card debt in collections.

Additionally, you may be able to use a debt management program to take care of and consolidate any type of unsecured debt apart from student loans and taxes. Student loans are a unique type of loan and need specialized relief programs. Debt management programs can’t be used with “secured debts.” Secured debts include loans such as mortgages or auto loans.

The cost of a debt management program

With any money management service, you should know what the costs are going to be and how those costs compare to other solutions. Since debt management programs are run by nonprofit credit counseling agencies, the fees are low compared to other solutions.

A debt management program has a one-time setup fee that you pay with your first program payment. Then there is a monthly administration fee every month thereafter.

There is a nationwide cap on debt management program fees. It is currently $79 monthly; however, the average person pays about $49 per month. You only pay once you are enrolled. To make the process easier, all fees are rolled into the program payments. But you will know exactly what those fees are before you enroll.

Consumer credit counseling agencies are 501(c)3 nonprofit organizations. That means they’re not in the business of making money off your financial hardship. Instead, they are primarily funded by grants from credit card companies. As a result, the cost of a debt management program is relatively low compared to other solutions, such as debt settlement.

It still does take some money to run and administer each debt management program. Credit counselors get a salary, and there is overhead and equipment. Fees can be reduced in cases of exceptional financial hardship and waved for certain groups of people.

For example, you may have lower fees if you’re a military Service Member or Veteran. Some credit counseling agencies reduce fees for people living in a declared disaster area for things like hurricanes, fires, or floods. The idea is that people often take on credit card debt following a natural disaster, so they may face severe financial hardship as they recover.

The effects of a non-profit debt management program on your credit

In general, debt management programs tend to have either a neutral or possibly a positive effect on your credit score, but it depends on what your score is when you start. Not using a debt management program might be the worst thing for your credit if you cannot pay off all the credit cards or make your minimum monthly payments.

A debt management program can often be good for your credit score because you will make payments on time on all the accounts included in the program. On-time payments account for 35% of your credit score. Since most creditors agree to bring past-due accounts current after three payments, you can also stop damage from missed payments on delinquent accounts much faster.

It’s often the case that you can leave one credit card out of the program to keep it active and open while you pay off your other cards. If you can keep the good habits from the program, keep a low balance and pay on time, this will positively affect your credit score.

At the end of the program, your frozen cards will be closed. This may affect your credit score negatively, but it also has a good side. When you close accounts, your score goes down because one aspect of credit ratings is how long you’ve had credit. With that being said, even though you have some closed accounts when your credit record says “paid in full,” your future creditors will be able to trust you, and this is positive for your credit report.

As long as you pay off your balances on time and in full, which is what the debt management program does, the credit bureaus will positively view your credit habits. But, if you miss a payment, then you will damage your credit history. Be sure that you will be able to make payments as agreed before you start this program. Take some of the extra money you should have monthly because of lower payments and create a savings account for emergencies and other life goals.

It’s crucial to note that while your credit counselor is negotiating with your creditors, you should continue to make on-time minimum payments, or your credit rating will suffer.

The differences between debt management and debt settlement

Debt management and debt settlement are very similar in some respects. Both are designed to get you debt-free, and both will allow you to enjoy paying down your debt with just one payment a month. Beyond those two aspects, the programs are very different.

A nonprofit debt management program will help you pay ALL of what you owe with lower interest rates and a single monthly schedule. You continue to pay your debts while the credit counseling agency works out terms with your creditors. Your entire debt gets paid and not charged off, which means you won’t damage your credit long term.

The program can be used to pay off debts that are current, behind and in collections. Current debt will stay current and delinquent debts will be brought current, usually within three payments on the program.

Debt Settlement is different. You only pay a portion of the balance you owe. A debt settlement company creates an escrow account where you set aside money that will be used to make settlement offers. But your creditors are not paid every month. The debt settlement company only contacts your creditors once there is enough money in your account to make settlement offers. Then the creditor is paid out of that account and the debt settlement company takes their fees.

Debt settlement fees are much higher than those with a debt management program. Companies will either take a percentage of the original debt owed or a percentage of the amount settled, depending on the company’s fee structure. Fees can be up to 20-25% of the amount enrolled in the program or the amount settled. You should receive a detailed summary of how the fee structure works before you sign up.

What you should consider before you start a debt management program’s founder, Howard Dvorkin, is a supporter of nonprofit debt management programs. He’s continually advocated for debt management programs as a way for consumers to get out of debt faster.  But he wants people who are thinking of entering into a debt management program to understand it fully.

“Often, people get into serious trouble with credit card debt because they’ve become credit-dependent,” Dvorkin explains. “You get accustomed to pulling out the plastic anytime you’re short on cash. You come to rely on credit cards to cover monthly expenses and use them anytime you have an emergency. If you don’t break this credit dependence, then it won’t be long before you face credit card debt problems again.”

Debt management programs make you stop using credit cards. The credit cards are frozen during the program and can’t be used. When the program is over, the cards are closed.

Mr. Dvorkin continues, “You need to be aware, that if you miss even a single payment, the program could end. This would be the second commitment you’ve made to your creditors that wasn’t honored. Those in this program need to be dedicated to their goal of becoming debt-free.”

Most of the time, however, because you are paying less per month on your total debt, you will also be highly encouraged to set up an emergency fund that could be used to cover a month or two if you are otherwise unable to make payments.

It’s possible that one or two creditors and some collection companies will not accept the offers from the credit counseling. Mr. Dvorkin explains, “So, you may have to pay more than one monthly bill. If that is the case, your credit counseling agency will figure the difference in your monthly budget.”

With a good debt management program, not only will you get out of credit card debt and be on the way to living debt-free, but you’ll also learn the skills and techniques to stay out of debt.

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