Debt Management Plans vs. Debt Consolidation Loans

A debt management plan is not a consolidation loan, although the two share similar benefits. Which is the right choice for you?

Consolidation loan

A debt consolidation loan is a new loan where the funds are used for the purpose of paying off existing unsecured debts. Traditionally, this comes in the form of an unsecured loan used to pay off one or more credit card debts. You can also refinance a mortgage or add a second mortgage on your home, using the new funds to pay off those unsecured debts.


  • If you can get a loan with a low interest rate, you can potentially save a good deal of money using this method.
  • You can also consolidate payments this way – just one payment a month, instead of individual payments for each account.


  • Most lenders will require you to close the accounts being paid off by the loan. This may potentially have a negative impact on your credit score as the age of your active accounts decreases.
  • It’s dangerous to convert unsecured debt (credit cards) into secured debt (mortgage). If you refinance your home with an eye toward reducing credit card debt, but then find yourself struggling to manage the new mortgage payment, you could put your house at risk.
  • There may be fees associated with opening the loan.
  • If your debt resulted from bad or unhealthy spending habits, moving the debt to a new account won't do anything to change that behavior. You still have to make a commitment to repaying the debt and changing your approach to spending.

FINAL VERDICT: A debt consolidation loan can be a great option if you’re overburdened with credit card debt, but have good credit and are generally responsible with money. The right loan can save you significant money and simplify the repayment process. Just remember that a consolidation loan merely moves your debt from one place to another - you still need to make the payments and avoid creating new debt in order to be successful.

Debt Management Plan

A debt management plan, or DMP, is usually provided and serviced by a credit counseling agency. Following an assessment of your financial situation, you may be offered the opportunity to consolidate your unsecured debts into a structured repayment program. This is not a loan. You would make a single payment to the credit counseling agency, which would then disburse the funds to your creditors on your behalf.


  • Since a DMP is not a loan, there is no credit requirement to qualify.  
  • You receive ongoing counseling and education on managing and eliminating debt.
  • Most creditors offer significantly reduced interest rates for accounts being paid through a DMP.
  • You only make one payment each month.
  • DMPs are designed to fit into your existing budget. You will not be offered a DMP if it isn't a good fit for your situation.
  • Overdue accounts are usually still eligible to be included on your plan. Many creditors agree to bring delinquent accounts current after a set number of DMP payments.
  • Accounts are paid off within five years, with most clients becoming debt-free in approximately three years.


  • As with consolidation loans, the accounts included on a DMP will be closed, which could have an adverse impact on your credit score.
  • Secured debts are generally not allowed on DMPs, meaning you will still need to manage your mortgage and car payments separately. Student loans cannot be included on your DMP at this time.
  • Although hardship waivers are available, most DMPs include a monthly fee. 

FINAL VERDICT: A debt management plan is a good solution for consumers who have already begun to miss payments, who have damaged credit, who need structure and hands-on guidance, or who need to help changing their financial habits.


  • 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.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • 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.