Pros and Cons of Using a Debt Management Plan

Utilizing a debt management plan (DMP) to reduce your credit card interest rates and lower your monthly payments may seem like a great idea, but there are some drawbacks as well. Whether or not a debt management plan is the right move for you will ultimately depend on your unique financial situation.

Before taking the leap, it’s important to understand debt management plan pros and cons.


You only need to make one monthly payment

With a debt management plan, you no longer need to worry about making multiple payments each month. Instead, you only need to make one payment to your credit counseling agency.

The credit counseling agency will then make the payments to the creditors on your behalf. This is especially useful if you have a lot of accounts or struggle to keep track of due dates.

With one monthly payment, you’ll no longer have to juggle a complex payment calendar or the constant stress of late fees.

As long as you make the payment to your credit counseling agency on time, you can take it easy for the rest of the month.

You may be able to secure lower interest rates

As part of your debt management plan, your credit counselor will try to negotiate lower interest rates on your behalf.

When it comes to credit card debt and other unsecured loans, high interest rates can drastically increase your monthly payments. Luckily, the reverse is true, too.

Lower interest rates often mean lower monthly payments.

You should be able to pay off your debt faster

With negotiated terms and lower interest rates, most people with a debt management plan pay their debts within three to five years.

With a lower interest rate, you will be able to save money on payments and more of your payment can be applied to the principal balance.

As a result, you might be able to pay off your debt even faster.


You are required to close your credit card accounts

Any credit card that is included in your debt management plan must be closed. This ensures that you are not taking on more debt while you pay back your current balance.

It also ensures that you are using the lower interest rate and debt management plan perks from for their intended purpose.

Even if you have a credit card that isn’t included in your DMP, you’re advised against using it, except in case of emergency.

The creditors involved in your DMP can monitor your spending. If they notice new debt, they might ask you to close the account.

You must make consistent payments to keep the benefits

In order to keep the benefits of your debt management plan—lower interest rate, smaller monthly payments and more—you must make consistent monthly payments.

If you don’t, you might lose the benefits. Debt management plans work best for people who are committed to financial change and plan to uphold their end of the agreement.

Not all creditors participate

Even though most creditors participate in debt management plans, some don’t. Although your credit counseling agency will negotiate on your behalf to secure the best terms, the conditions and benefits are ultimately determined by the creditor.

Although it is rare, one or more of your creditors might refuse to participate and if that happens, a debt management plan might not be the best option.

Bottom line

The only way to truly determine whether or not a debt management plan is right for you is to meet with a certified credit counselor. Appointments are free and counselors are available 24/7. Money Management International has trained financial counselors ready to take a comprehensive look at your finances and offer recommendations.

  • 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.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • 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.