What happens in debt management is you work with a nonprofit debt consolidation company to pay off your unsecured loans in three to five years. You can work with a nonprofit organization that will mediate with your creditors on your behalf, or you can follow a do-it-yourself program. 

  • They do work, but you must follow the plan diligently. 
  • There are advantages and disadvantages to working with credit consolidation companies. 
  • You can do it yourself, and there are do-it-yourself programs to guide you. 

Debt management plans are great tools to pay off unsecured balances as long as you have enough income to pay your monthly bills.  

What Happens in Debt Management, how do Plans Work? 

Debt management plans (DMP) work by reorganizing your loans into a single monthly payment so you can pay them in three to five years. The process begins when you contact a nonprofit debt consolidation company. What they do is: 

  • Assign a counselor to you who interviews you about your current financial situation. 
  • Negotiate with your creditors on your behalf to lower interest rates and eliminate fees. 
  • Develop a new payment plan where you make one monthly payment to the nonprofit and distribute the funds to your creditors. 

Many creditors are willing to do this because you are accountable to the debt consolidation company to make your monthly payments.1  

Qualifying for a DMP  

Companies have their own formulas to determine eligibility There are, however, a few qualifications that you should know about. The first is that these are only available for unsecured loans. This means that there is no collateral backing them. Some examples are credit cards, personal loans, income taxes, and medical bills. After that, they consider your income. 

  • Your loan payments are higher than your income. 
  • Your income is high enough that creditors won’t give concessions. 

If you owe more than you can pay then you need a more aggressive alternative, such as bankruptcy. On the other hand, if your income is too high, then you just need to reprioritize your spending so you can make payments. In either case, your counselor will still help you find a solution, I just won’t be a DMP.2  

DMP Costs  

Debt consolidation companies usually charge a setup fee and then monthly fees. 

  • Set up fees usually run $30 – $50 
  • Monthly fees range anywhere from $20 – $75 

How much a company charges you depends on its cost structure and your case. Make sure you get their fee structure upfront and in writing. If they charge very high fees or add more charges, then you should look around for another place. 

Included Debts in a DMP 

DMPs only include unsecured debts, such as credit cards and personal loans. You can’t include loans with collateral, such as mortgages and car loans. Also, student loans are ineligible for these programs.  

You don’t have to include all credit cards, but creditors usually require that you close all your unsecured loan accounts in order to participate. Some, though, do allow you to keep one open for emergencies.  

What Happens in Debt Management? Advantages and Disadvantages of a DMP 

DMPs can be very good for eliminating unsecured loans, but they do have disadvantages as well. The main advantages include: 

  • Professional advice 
  • Waived fees, lower interest rates, and reduced monthly payments 
  • Single monthly payments 
  • Accounts brought current 

Probably the biggest advantage is that you get a counselor who holds you accountable for a program that will get you out of debt in a specified time period. There are, however, disadvantages as well. They include: 

  • It won’t help you with all debts. 
  • There are fees. 
  • You lose access to credit. 

These plans only help with a narrow range of debt, namely unsecured loans. It’s not comprehensive, and there are alternatives, such as the debt snowball, that you can do yourself if you have discipline.3  

DMP and Credit Scores 

If you follow a DMP it will hurt your credit score for the first few months, but it will help raise your score by as much as 100 points over the course of the program. Credit agencies use an algorithm with five factors that interact to give you your score.  

  • History of on-time payments accounts for 35% 
  • Credit utilization accounts for 30% 
  • Length of credit history accounts for 15% 
  • New credit accounts for 10% 
  • Types of credit accounts for 10% 

History of on-time payments will improve dramatically over the course of the program. Credit utilization will hurt you in the beginning because you close accounts. Also, the length of credit history will hurt you in the beginning, because you won’t have a long history anymore. You won’t open new accounts, so that should help. Finally, the last category has nothing to do with the program.  

The bottom line is that your credit will go down a little while you go through the program. Once you successfully complete the plan your score should increase. 

DMP and Creditors 

Your creditors can refuse your DMP. For unsecured accounts, the promise of regular payments and the eventual pay-off is a big incentive for most creditors. After all, you might declare Chapter 7 bankruptcy and they won’t see much money at all. On the other hand, you and your credit agency are asking them to make concessions, and some may not want to participate.  

What happens in Debt Management; Can I Arrange My Own DMP? 

Absolutely! You can arrange your own debt management plan. Taking personal responsibility for your finances is the right thing to do, and if you are disciplined enough there is no reason you can’t succeed.  

  • Begin by taking assessing your income so you know how much money you have to work with. 
  • Gather all your bills together and assess them. Divide them into secured and unsecured.  
  • Log the balances, interest rates and monthly payments for each. 
  • Compare your monthly payments with your income and decide how much you can afford to pay down your debts. 
  • Commit yourself to a written plan so you know exactly what you need to do to get out of debt. 
  • Contact your creditors to see if they will lower interest rates or waive fees (some will and some won’t) 

We recommend a snowball method where you pick one account and pay it off first. Then you move on to another. You keep paying off one at a time until you don’t have any more debt. It gives you a sense of accomplishment along the way as you pay off a new debt, and that helps keep you motivated to continue. Dave Ramsey has an excellent, structured program using this approach. Crown Financial also has excellent free resources to help you develop a plan yourself.  


  1. Experian 
  2. In Charge Debt Solutions 
  3. Debt.org