Consumers have many choices when it comes to debt relief. And with companies making big promises and offering quick fixes, it can be confusing to know what solution is the right one. Often, debt relief plans and programs get lumped together and people assume they are all the same or only differ slightly. But all debt relief is not the same. If you have asked “what are debt management plans,” keep reading.

Offered by Nonprofits

Unlike for-profit companies that offer debt settlement and credit repair, debt management plans are offered by non-profit credit counseling agencies. These agencies are committed to helping people get out of debt and manage their finances responsibly. They’re not focused on making a profit. Any fees you pay while on a debt management plan cover administrative costs and support the agencies’ mission of providing financial education in their communities.

What Are Debt Management Plans?

Debt management plans (DMPs) are designed to help consumers pay off credit card debt more quickly than they could on their own. Most clients on the program pay their credit card debt in full in five years or less — and many pay it off completely in as little as two years.

The shorter payoff window is possible thanks to the lower interest rates credit counseling agencies negotiate with creditors. They provide an average interest rate of 8% to clients on debt management plans, far lower than any interest rates they could negotiate on their own.

Clients enrolled in debt management programs make one monthly payment to the credit counseling agency. The agency then disburses payment to all the clients’ creditors. As balances are paid off, the funds used for those payments go toward paying the larger balances. Clients are welcome to make extra payments to pay off their debt even more quickly.

Who Should Use a Debt Management Plan?

Anyone carrying balances on high-interest credit cards can benefit from a debt management plan. The plans are especially good for consumers who have applied for a debt consolidation loan but couldn’t get approved due to their current credit situation. There is no minimum credit score requirement to enroll in a debt management plan.

How Do You Start a Debt Management Plan?

The first step toward finding out if a debt management plan is right for you is to complete credit counseling. You can do this either online or on the phone with a certified counselor. You will review your income, expenses and debts and create a budget to see if a debt management plan payment makes sense for your financial situation. In many cases, the monthly DMP payment is lower than the combined minimum monthly payments people had been making before they enrolled in a debt management program. If you find a DMP isn’t the right option for you, a counselor will review other debt relief solutions to help you decide your next steps. Credit counseling is always free and confidential.

Are There Downsides to DMPs?

There are few downsides to a debt management plan, especially when compared to other options, like debt settlement or bankruptcy. Clients may experience a dip in their credit score when they first enroll in a plan, due to closing credit cards. But as the plan progresses and payment history improves, credit scores improve, too. Many clients finish the program with their credit in great shape, which helps them work toward other financial goals.

Another adjustment clients must make is moving from using credit regularly to living a cash-only lifestyle. It can be challenging initially. But breaking the credit card habit  is a key concept of living a debt-free life.

DMP Benefits at a Glance

Debt management plans are offered and managed by nonprofit credit counseling agencies. The benefits include:

• Paying off credit card debt in five years or less
• Saving money due to lower interest rates
• Peace of mind with easy-to-manage monthly payment
• Receiving ongoing support and financial education

See if a debt management plan is right for you by completing online credit counseling now. You can also call a certified credit counselor at 866.528.0588.

Find out what people who have completed a DMP have to say about the program.