Debt Management Program FAQs

Written by:
Director of Education and Corporate Communications

Find answers to the most commonly asked questions about a debt management program.

A debt management program – also called a debt management plan or DMP – is a structured repayment plan that helps you eliminate credit card debt. It consolidates your debt into one monthly payment and is overseen by a nonprofit consumer credit counseling service.

You work with a certified credit counselor to assess your financial situation, create a budget, and explore debt relief options. They’ll start by asking you questions about your debt amount, types of debt, and income level to see if a DMP is the right solution for you and your budget.

The initial consultation is free. This Debt Management Program FAQ is intended to answer the most commonly asked questions about the debt relief option. We encourage you to call us at (844) 276-1544 to speak with a certified credit counselor who can assess your financial situation and provide personalized advice on how you can find relief from debt.

The credit counseling agency then negotiates with your creditors to reduce interest rates and waive late fees and penalties, significantly lowering your monthly payments and the total amount you’ll pay over time. You make a single monthly payment to the credit counseling agency, which then distributes the funds to your creditors according to the agreed-upon repayment plan.

What does a debt management program do?

A debt management program consolidates your credit card and other unsecured debt into one monthly payment. It also reduces or eliminates late fees and penalties. Most importantly, it negotiates with your creditors to lower your interest rates. This significantly reduces your overall debt burden.

Does a DMP write off debt?

No, a DMP does not directly write off debt. Instead, counselors work with creditors to reduce your monthly interest and fees and set up a monthly payment program. This results in reduced monthly payments. However, you remain responsible for repaying the full amount of the original debt, though with lower overall costs due to reduced interest and fees.

Do most creditors accept DMP?

Most creditors do accept debt management programs. However, they are not required to do so. Almost all major creditors participate in debt management programs (including Capital One, American Express, Chase, and Discover), and most major retailers that offer store credit cards also participate (including Amazon, Best Buy, Costco, and Walmart).

What happens if a creditor refuses a debt management plan?

If a creditor refuses to participate in a Debt Management Plan (DMP), the program’s effectiveness can be impacted. The primary goal of a DMP is to reduce interest rates and consolidate payments. A certified credit counselor with a good credit counseling agency will tell you if they work with your creditors. They’ll only enroll you in a debt management plan if it fits your financial situation best. And if it doesn’t fit, they’ll recommend the best debt relief option for you.

See the full list of over 1,600 creditors that Consolidated Credit works with »

What to do if a creditor refuses…

Discuss the situation with your credit counselor. The list below outlines a few things they may be able to do to help.

  • Renegotiating with the creditor: They may be able to explore alternative solutions or persuade the creditor to reconsider.
  • Adjusting the DMP: In some instances, they can modify the plan to accommodate the creditor who refused to participate.

Is a DMP a good idea?

Whether or not a DMP is a good idea depends on your unique circumstances. DMPs have many positives: they consolidate your payments, reduce interest rates and fees, and help you build a positive credit history. Talking with a Consolidated Credit counselor can help determine if this is the best path for you or if another debt relief option is a better fit. That’s why Consolidated Credit’s first debt analysis is always free. The only cost to the consumer upfront is 30 minutes to an hour of their time.

What are the downsides of DMP?

While debt management programs usually end up being a positive for those who complete them, they have a few downsides.

  • Loss of credit cards: Your creditors will “freeze” any accounts you’ve put in the program and typically close them once they’ve been paid. Keep in mind that you can often keep one credit card out of the program in case of an emergency.
  • Length of credit history: Closing accounts can shorten your credit history, which is a factor in credit score calculations.
  • Limited credit access: You cannot apply to new credit cards (except for secured credit cards) while on a debt management program.
  • Not all debts can be included: Student loans, mortgages, and auto loans are not included in debt management programs. Also, creditors (like payday loans) might not agree to participate, which can hinder the program’s effectiveness.
  • You must keep up with payments: If you don’t, you may get dropped from the program. However, any payments made to that point will still be credited to your accounts.
  • Time commitment: On average, DMPs can take three to five years to complete. However, if you commit to staying consistent and disciplined with monthly payments, you will get out of debt and build a positive credit history.

Can you keep a credit card on a debt management plan?

Yes, you can typically keep a credit card while enrolled in a Debt Management Plan (DMP). However, any credit cards included in the DMP will be frozen during the program. This means you won’t be able to use them for purchases.

  • Credit cards not included in the DMP: You can continue to use these cards responsibly.
  • Credit cards included in the DMP: Once the debt on these cards is fully repaid, the accounts are closed and in good standing.

While you’re not required to include all your credit cards in a DMP, credit counselors often recommend it since it’s difficult to commit to getting out of debt and incur new debt simultaneously. Also, you cannot apply for new credit cards while enrolled in a DMP.

Can I get a loan while on a debt management plan?

Yes, it is possible to get a loan while being part of a debt management plan. The key factor is the overall state of your credit at the time of your loan application. If your credit score is low, you may have a difficult time securing a loan or may have a higher interest rate.

Will a DMP stop me from getting a mortgage?

No, you can still get a mortgage while enrolled in a debt management program since mortgages are secured credit. As long as your credit score and income meet the requirements, including your overall debt-to-income ratio, and you are paying your debt management program on time, lenders will see you as a responsible candidate for a loan. Many people get into a debt management program because they have a goal of purchasing a home.

Can I get a car loan while on a DMP?

Yes. You can get a car loan as long as your credit and income match the requirements needed by the financing company. As with a mortgage, if lenders see you make all your payments on time, you’ll likely have a better chance of getting car financing. When you are in the program, lenders may charge higher interest rates.

How much does a DMP cost?

There is usually a small one-time setup fee and a monthly administration fee to oversee your debt management program. According to the Uniform Debt Management Services Act, all fees for a DMP are set by the state where you reside.

Fees are based on your budget, how many credit cards you have and how much you owe.

The average client pays about $40 a month. And while the fees vary state by state, they’re limited to $79 a month. Those fees are rolled into your debt management program. You may be eligible for a fee waiver if you meet certain income qualifications. Credit counseling, however, is performed at no charge.

What debts cannot be included in a DMP?

You cannot include student or secured loans, such as a mortgage or auto loan, in a DMP. Payday loans may or may not be included. This depends on whether the payday lender agrees to allow you to include their account in the program.

What is the maximum debt for a debt management plan?

While there is no specified maximum (or minimum) debt for a debt management plan, they work best for those who have between $5,000 and $100,000. What matters most about the amount of debt in the program is your ability to afford the payments reasonably. This is why a Free Debt Analysis is so imperative.

A credit counselor will ask about your income and monthly expenses. They’ll only recommend a debt management plan if it fits you and your monthly budget. If not, they’ll advise on the solution that will help you most.

Does a DMP require monthly payments?

Yes, a debt management program requires you to make monthly payments. You can always pay more than your required payment amount, but never less.

Can I pay off my DMP early?

Yes! There is typically no penalty to paying off your DMP early. In fact, early repayment may reduce the total interest due and lower your overall cost. It’s best to discuss the implications of early repayment and any potential adjustments to your payment plan with your credit counselor.

How long does a DMP stay on your credit file?

A Debt Management Program (DMP) doesn’t directly report to the major credit bureaus (Equifax, Experian, and TransUnion), so there’s no need to be concerned about it on your credit report.

DMPs can, however, indirectly impact your credit score. Some individuals may experience a temporary dip in their credit score at the start of a DMP due to the closure of credit card accounts included in the program. However, consistent on-time payments through the DMP can significantly improve your credit score over time. By lowering your credit utilization ratio (the amount of credit you’re using compared to your available credit) and demonstrating a strong payment history, you can positively impact your credit score.

How do you rebuild credit after a DMP?

While debt management programs don’t hurt your credit (in fact, they usually have either a positive or neutral effect), you may still have low credit due to the underlying factors that led to your debt in the first place, like high credit utilization or past due accounts (these negative entries will remain on your credit report for several years).

Rebuilding credit takes time and effort, but it is possible. Here are a few things you can do to improve your score:

  • Make on-time payments
  • Build a positive credit history with a secured credit card
  • Take out a credit builder loan

Monitor your credit report

How long do you pay a debt management plan?

A debt management program typically takes 3-5 years to complete. The exact length of time is determined by how much you owe, what your monthly payment is, and your interest rate. Here’s why:

  • Debt Amount: A larger debt naturally takes longer to repay, even with consistent payments.
  • Monthly Payment: Higher monthly payments accelerate debt reduction, shortening the program duration.
  • Interest Rate: Higher interest rates mean more of your payment goes towards interest rather than principal, which extends the repayment period.

What happens if I can’t pay my debt management plan?

If you’re unable to make your DMP payments, contact your credit counselor immediately. If it’s a one-time slip-up, they should be able to contact your creditors to let them know that they’re already working with you to keep your DMP on track. They can help you explore options such as adjusting your payment plan, negotiating with creditors, or receiving guidance on budgeting and financial management strategies.

If you miss the payment entirely (i.e., pay late by more than 30 days) or don’t talk with your credit counselor, it can have serious consequences.

Missed payments will negatively impact your credit score and may lead to creditors resuming collection efforts. The credit counseling agency may terminate the DMP, requiring you to make individual payments to each creditor and potentially losing the benefits of reduced interest rates and waived fees negotiated as part of the plan.