Pros and Cons of Consolidating Debt with a Debt Management Plan (DMP)

Thinking of consolidating your debt with a debt management plan? Here are a few things to keep in mind as you weigh your options:


Simplified repayment

Although a debt management plan (DMP) is not a loan, it does combine all your unsecured credit card debts into a single monthly payment. That payment is made to the agency managing your DMP, and is then distributed to each of your participating creditors.

Reduced interest rates

Because the DMP isn’t a loan, there is no single interest rate for the entire program. Individual creditors, however, will often reduce your interest rate if you repay your debts through a DMP.

Budget-friendly payment amount

Debt management plans that are created through a nonprofit credit counseling agency must be viable for the consumer – meaning you have to be able to afford the payments each month. That’s why a budget counselor will work with you beforehand to help you build a monthly spending plan and determine how much you can afford.

Maintain flexibility

Unlike other forms of debt consolidation, you can cancel a debt management plan at any time if you don’t think it’s working out for you. Once canceled, you would just resume making normal monthly payments to your creditors.

Fixed end date

Debt management plans are designed to pay off your debts in full within five years, and most are completed within three.

No credit requirements

You don’t need good credit to qualify for a debt management plan.

Credit Score Improvement

Every situation is different, and there's no guarantee that your credit score will improve with a debt management plan. On average, however, DMP clients have seen their scores go up by 62 points after two years on the program. 


Not every creditor is guaranteed to participate

Debt management plans only really work when your creditors are willing to participate and offer you benefits for using the DMP. Nearly all major credit card providers will offer some benefit for using the plan, but it’s not a guarantee that every one of your creditors will participate.

Your credit cards will likely be closed

In exchange for offering reduced interest rates and other benefits, creditors will almost always close your credit card account once it’s been included on a DMP. This may cause a temporary drop in your credit score.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

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  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.