Debt Management Plan

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Debt Management Plan Definition
A Debt Management Plan (or DMP) is the official name for a Payment Plan that is managed on your behalf as a way to rationalize your monthly payments to creditors like store and credit card lenders who agree to accept your payment under a debt management plan. With debt management plans there is no consolidation of debt - merely a rationalization of pay back at lower interest.

Debt Management Plans
A debt management plan is actually a debt repayment plan. Under this debt repayment plan your repayments are managed for you. It is a debt payment plan arranged by a service provider and the debt payment plan is formalized through an agreement. Whilst any debt plan requires commitment, this debt plan is a long-term proposition.

debt management plans

Debt Management Plan

A debt management plan is set up by and agreed with a debt plan provider who then makes routine payments to all your unsecured lenders. The debt plan idea is that instead of you paying various creditors each month the provider steps in to manage these payments for you - at lower interest rates, which they have negotiated. You pay the debt management plan provider a fixed amount each month that contains their service fee.

Aka: Debt Management Program, Debt Consolidation Program, Debt Consolidation Plan, Debt/Credit Counseling
Confused? See our Debt Consolidation Summary


debt management plans

  • A debt management plan is a repayment plan where lenders receive back the money you borrowed with lower interest directly from your debt management plan provider. For this service you pay a fee contained within one monthly bill from the provider. The provider takes charge of making your repayments using this monthly sum.
  • Debt management plans are only for unsecured creditor debt.
  • For credit cards, store and gas card debt and unsecured loans. Can include some attorney and healthcare bills and other past due accounts, including overdue utility bills on closed accounts. Other borrowed monies where there is no asset lien may also be covered by debt management plans. 
  • The debt management plan administrator negotiates with your creditors and collection agencies for you.  

How - It Works

  • The company whom you choose to operate the debt management plan negotiates an interest rate reduction with each lender account placed into the debt plan.
  • The debt plan operator may also secure a waiver of penalty or overdue fees. Where relevant, they may also facilitate an extension of the payment period.
  • There is no reduction in the total balance amount owed, only a concession on the applicable interest rate and possibly fees.
  • A debt management plan does not involve a loan.
  • You agree to make one routine payment to the debt management plan host who then continues paying each individual company that you owe.
  • Debt is neither consolidated nor paid off until you have successfully completed the debt management plan.


Most debt management plans work in the above way. All you need do is carefully choose the provider.

When - To Consider

A debt management plan is designed to pay off the debt owed or the accounts that are enrolled into the plan over a period of time by means of a fixed payment that will address both principal and interest. Participation in a debt management plan requires good discipline and is not advised for every debt situation. Debt management plans may be an appropriate choice - and only on the advice of a licensed counselor - when for example:

  • The problem is with debt unsecured, and often involves credit cards.
  • Your income is consistent and you can afford to make the agreed payment into the debt management plan each month.
  • You are not suffering financially such that bankruptcy may be an imminent prospect.
  • The problem is due more to poor debt management, rather than a lack of or loss of income.
  • Other alternatives to a debt management plan including self-help are not available or viable.
  • Your credit score is not good.
  • You are not the subject of substantial debt collections. Your debt management plan provider can handle some collection agency accounts.
  • You are juggling your payments, have missed or are late with some.


  • Cheaper. Agreed at the outset - your monthly installment should be both affordable and less compared to what you have been paying, the result of lower interest rates.
  • Rationalized. Under a debt management plan you need only make a single payment to the plan operator. Every month your obligations to various creditors are covered.


  • You'll need to have debt across a few lenders and not just one problem account.
  • Your finances must show that you could afford to pay the agreed installment over time.
  • The rate of interest that you already pay on average across all accounts to be enrolled in the debt management plan should not be less than perhaps 10%.


The debt management plan cost should form part of the monthly installment figure that you agree to - there being no additional charges. There may be one legitimate and separate charge in the beginning. This charge would be for the initial interview. It should be negligible and a one time only charge.


A debt management plan may run on average for a period of four to five years. The plan operator should calculate the value of a monthly installment in order to pay off the combined debt within an acceptable timeframe.

Who - Provides

  • Debt "~" Companies/Agencies (Businesses known commonly as Debt Consolidation Companies).
  • Certified Professional Credit Counselors (For Profit Counseling).
  • Credit Counseling Agencies (Widely referred to as Non Profit Debt Consolidation).


  • Potentially debt management plans that work can lead to a significant reduction in the total interest paid over the life of the debt.
  • A single installment paid into debt management plans replaces the need to manage numerous creditors yourself.
  • A reduction in the total monthly outgoings for these creditors. 
  • Professional negotiation from providers who have an established relationship with your creditors which allows them to secure reduced interest rates and penalty fee waivers.
  • Can help by stopping collections activity. 
  • A debt management plan provider should offer free resources and support to help you succeed, learn budgeting and more.


  • The original debt remains. The purpose of a debt management plan is to cut the cost of interest and make the debt burden more manageable. - There is no consolidation other than in the amount of checks that you need to write each month.
  • You remain liable for the debt to each individual creditor until they are paid off on satisfaction of the debt management plan.
  • Lending organizations are not obligated to agree to a debt management plan and continued participation is not guaranteed.
  • Your cards may be frozen for use and you may be required to refrain from applying for any additional credit.
  • Creditors report involvement in debt management plans to the credit bureaus. Other lenders may perceive debt management plans negatively.
  • You're now reliant upon the debt management plan operator to make timely payments.
  • A rigid installment plan offers you little flexibility should you need it.
  • The best debt management plan may still cost more each month, and overall, when compared to alternatives.


Application - Information

Debt management plans require that you first collect information about your routine expenses, prove your income and evidence your bills, so that the counselor can evaluate this and consider your personal debt options prior to recommending their debt management plan. Pay checks and any additional incomes. Mortgage payment or rental cost, auto payment, insurance and policies cost. Utility, food and non-fixed expenses. You will need to show statements including from your bank and card issuers. Gather as much as possible and make sure that the loan terms or interest rates that you currently pay are shown on official paperwork.

Application - Process

The process should first involve a counselor who will analyze your financial situation and consider your income, expenditure and debt in order to determine if a debt management plan makes sense. In the beginning, all options should be on the table. The counselor should be honest and tell you if a debt management plan is not right for you and help you towards any suitable alternative. Where it has been determined that a debt management plan is appropriate, and after analyzing your accounts, the counselor should indicate the monthly installment cost to you and likely duration of the plan. At this stage you should have the opportunity to review this and further information - before you decide to sign up. Debt management plan operators will contact your creditors to propose new repayment terms. They will seek to reduce the interest amounts and other debt plan concessions. Once the debt plan details are agreed and confirmed then you commence paying into the debt management plan and stop paying the creditors directly.

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