Debt Consolidation
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How Debt Consolidation Programs Can Get Your Finances on Track

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Debt management plans (DMPs), a popular type of debt consolidation program, can help you get on track to pay off your unsecured debts. Often, a nonprofit credit counseling organization will set up and run the debt management plan, and act as an intermediary between you and your creditors.

Unlike a debt consolidation loan or balance transfer credit card, you don’t have to open a new account or have good credit to qualify for a DMP. However, you can still save money, lower your monthly payment and get on a path toward paying off your debts.

Debt management plans help you manage debt

Credit counseling organizations manage this type of debt consolidation program, and the initial step is reaching out and discussing your financial situation with a counselor. If a counselor decides a DMP could be a good option, and you sign up, you’ll make a single monthly payment to the credit counseling organization, which will distribute the funds to your creditors.

The benefits of using a debt management plan can include:

  • A single, potentially lower, monthly payment
  • Lower interest rates on the included accounts
  • Bring past-due accounts current
  • Stop collection calls about the accounts
  • Waive late and over-limit fees

Generally, if you follow through with the DMP, you can expect to pay off all the debts within three to five years.

Which debts qualify for this type of debt consolidation program?

Debt management plans are generally only available for unsecured debts, such as credit card debt. The credit counselor may be able to give you advice on managing a secured loan, such as a mortgage or auto loan, but it probably won’t be included in your DMP.

How much do these debt consolidation programs cost?

Although they’re nonprofits, many credit counseling agencies charge an initial setup fee and monthly fee for debt management plans. (The monthly fee is added to your monthly bill payment.) However, the savings from waived fees and decreased interest rates could more than cover the fees.

Here are examples of some agencies’ setup and monthly fees. They all range from $0 because agencies may waive their fees for qualified applicants.

Debt management plan costs

Credit Counseling agencyCosts
Advantage Credit Counseling Service
  • Setup fee: $0-50
  • Monthly fee: $0-$50
American Consumer Credit Counseling
  • Setup fee: $0-$39
  • Monthly fee: $0-$50
GreenPath Financial Wellness
  • Setup fee: $0-$50
  • Monthly fee: $0-$75


Step-by-step: How a debt management plan works

  1. Meet with a credit counselor: The first step is to meet with a credit counselor, which you may be able to do in person, over the phone or online. Be prepared to discuss your personal finances and answer the counselor’s questions. By the end, the counselor may present you with different options based on your circumstances. These could include a DMP, but a DMP also might not be the best option in your case.
  2. Wait for the counselor to get back to you: If you decide to sign up for a DMP, your credit counselor will first need to reach out to your current creditors. They will try to negotiate on your behalf to lower your monthly payments, decrease accounts’ interest rates and get your past-due fees waived if you’re behind on payments. The counselor will then get back in touch with you to discuss the results and what your DMP will look like.
  3. Sign up for the debt management plan: If you agree to the plan, you may need to pay a one-time setup fee and agree to a monthly fee. Your new monthly payment (including the fee) could be electronically sent to the counseling agency each month. They will then send the appropriate payments to each of your creditors.
  4. Close or stop using certain credit accounts: You may need to close all the credit cards that are included in your DMP, and agree to stop using other credit cards. Your creditors may also monitor your credit report to see if you open new accounts or use other cards, and cancel your DMP benefits if they notice you’re not sticking with the agreement.
  5. Make your monthly payment: Continue making your monthly payment until you’ve paid off all the accounts. Missing a payment could lead to your interest rates and monthly payments rising again, and late payments getting reported to the credit bureaus. If you think you won’t be able to afford a payment, contact your credit counselor immediately to see if they can help.

How to find and choose a debt management plan

There are no government debt consolidation programs for credit card debt. But you can still find trustworthy agencies. Start your search for a DMP by looking for organizations that are part of either the National Foundation for Credit Counseling or Financial Counseling Association of America. These two associations certify credit counselors, and the member agencies and organizations must be nonprofits to maintain their association.

If you’d prefer to meet with a counselor in person, there may only be a few options depending on where you live. However, many credit counseling organizations also offer online or phone appointments.

An initial consultation or call may be free, so take the opportunity to interview the counselor and make sure it’s someone who you want to work with. You can also search for reviews of the credit counseling organizations. For example, we reviewed Greenpath Financial Wellness and their offerings. But you might also seek out consumer reviews.

Debt management plan vs. debt consolidation loan

A DMP is one type of debt consolidation program, but another popular option is to take out a new loan to pay off your current debts. Debt consolidation loans are often unsecured personal loans, although some people will borrow against their home or another valuable asset to consolidate their other debts.

DMPs and debt consolidation loans share a few similarities:

  • You’ll make a single payment each month
  • Your monthly payment may decrease
  • You could save money if your interest rate is lower

However, there are also key differences to consider:

Differences between debt management plan vs. debt consolidation loans

Debt management planDebt consolidation loan
Does not require strong credit to qualifyRequires strong credit to qualify for a loan with competitive interest rates
May require a one-time setup fee and a monthly feeSome lenders charge an origination fee, plus interest
A credit counselor will help set up and manage the programYou’ll have to manage the process on your own
Generally only works with unsecured loansYou can consolidate secured and unsecured loans


Deciding between these two products

A nonprofit credit counseling agency’s debt consolidation program may be the best option if you’re struggling to afford your bills (or, already have past due accounts) and are looking for assistance. Having a trained professional who can negotiate on your behalf at an affordable cost can be relieving and rewarding.

Because you’re not taking out a new loan, your credit isn’t a factor. And, although you’ll need enough income to pay your bills, living expenses and the monthly DMP payment, you may qualify for many of the benefits — plus waived fees — if you have a low income.

On the other hand, if you have lots of high-interest debt but also have a decent income and good credit, a debt consolidation loan might be a better route. Some lenders don’t charge an origination fee, and you may be able to get a debt consolidation loan with a much lower rate than you’re paying on your credit cards. You’ll also be able to keep your credit cards and open new accounts when needed.


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