In 2025, people throughout the U.S. saw rising prices for consumer goods and a reduction in income and employment. Those factors contributed to a substantial rise in credit card debt. According to TransUnion’s October 2025 Credit Industry Snapshot Report, the U.S. consumer has an average credit card balance of $6,519. During the third quarter of 2025, the Federal Reserve Bank of New York reported that credit card balances among all consumers rose by $24 billion, totaling $1.23 trillion. So, it may come as no surprise that many people may be struggling with debt.
If you are deep in debt and don’t know how to dig out of the hole, a debt management plan, or DMP, could provide a lifeline. Working with a credit counselor, you can design a plan that lowers the interest rate on your debt, gives you a path to payoff and streamlines payments.
“There are few downsides to a debt management plan, especially when compared to other options, like debt settlement or bankruptcy,” says Amy Maliga, former financial educator with Take Charge America, a nonprofit credit counseling and debt management agency.
Here’s how DMPs work to help you decide whether it could be right for you.
What Is a Debt Management Plan?
A debt management plan from a nonprofit credit counseling agency consolidates your unsecured debts into a single affordable monthly payment to pay off what you owe in three to five years. You make a payment to the credit counseling organization, which distributes the money each month to your creditors.
Although these plans are offered by nonprofits, they are not free. A debt management plan may have a setup fee and a monthly fee.
“While nonprofit agencies offer their counseling services for free, there is a fee for most debt management plans,” says Allison Wetzeler, a certified credit counselor with Consumer Credit of Des Moines.
Fees can depend on your debt, your budget and regulations in your state, but they are usually “far less than the interest you will save” on the plan, she says.
How a Debt Management Plan Works
The first step is to review your financial situation with a nonprofit credit counselor before you agree to a debt management plan. This will help the counselor design a plan that meets your needs.
Typically, a DMP does not reduce the amount of debt you owe. But the credit counseling agency will likely negotiate with your creditors to increase the time you have to pay off the debt, which lowers your monthly payments. Your creditors may also agree to reduce your interest rate or waive certain fees.
Only unsecured debts can be included in a debt management plan. Some of the debts that might be part of a DMP include:
— Credit card bills
— Medical bills
A debt management plan can take up to 48 months or longer to complete, according to the Federal Trade Commission. However, payoff times can be much shorter in some cases, Maliga says.
“Most individuals on these plans can pay their credit card debt, in full, in five years or less,” she says. “Many pay it off in as little as two years.”
You may not be able to apply for credit while the plan is in place, the FTC says.
If you enroll in a debt management plan, you must adjust from using credit regularly to living a cash-only lifestyle, Maliga says. “It can be challenging initially, but breaking the credit card habit and spending only what you can afford is a key concept of living a debt-free life,” she says.
[Read: Balance Transfer Credit Cards]
How to Enroll in a Debt Management Plan
Start by identifying a reputable nonprofit credit counselor. Find candidates through the National Foundation for Credit Counseling and the Financial Counseling Association of America, and check their reputation with your state attorney general or the Better Business Bureau.
Some questions to ask to find the best credit counseling service, according to the Consumer Financial Protection Bureau:
— Do you offer in-person counseling?
— Do you have free educational materials?
— What fees do you charge?
— Do you provide help if someone can’t afford to pay the fees?
— Is your organization licensed in this state?
Choose carefully. The FTC warns that some nonprofit credit counseling agencies charge high fees and that these costs may be hidden.
Do not agree to a debt management plan unless you have talked with a credit counselor about your financial situation and worked on a plan to deal with your money problems, the FTC says.
You will talk with a counselor in person, over the phone or online. Prepare by reviewing your credit reports — you can access free weekly credit reports on AnnualCreditReport.com — and making a list of your debts.
Pros and Cons of Debt Management Plans
[SEE: Best Credit Cards to Build Credit]
Does a Debt Management Plan Affect Your Credit?
A DMP could hurt your credit in the short term but help it in the long run. You may be required to close accounts in a debt management plan, which can affect your credit.
“This can cause a small dip in your credit score,” Wetzeler says. “However, most people see an increase in their scores as creditors will continue to report on-time monthly payments.”
By the end of a debt management plan, consumers typically emerge in a much stronger position, Maliga says.
“Many clients finish their debt management plans with their credit in great shape to buy a home or meet other financial goals,” she says.
You can build a positive payment history — an important credit scoring factor — and repay your accounts in full.
Alternatives to a Debt Management Plan
If you decide that a DMP won’t work, consider one of these alternatives:
Debt consolidation loan. This type of loan rolls multiple debts into a single fixed amount. A debt consolidation loan might make sense if the interest rate is lower than what you are paying on your individual debts, Wetzeler says.
Debt snowball method. Both Wetzeler and Maliga like the debt snowball method, in which you pay off debts from smallest to largest. Once the smallest debt is paid, you apply the funds you were putting toward that debt to the next-smallest debt and repeat.
Debt avalanche method. This is similar to the snowball method, except that you start by paying off the card with the highest interest rate, working your way down to the card with the lowest rate, Maliga says. “Both methods can be effective, but people need the drive and discipline to stick to these plans and not continue using their credit cards as they work to pay off the debts,” she says.
Debt settlement. You may consider negotiating with your credit card companies to settle for less than what you owe. A debt settlement attorney or company can also negotiate but will charge fees, and you may owe taxes on discharged debt. Settlement can damage your credit and is considered a last resort before bankruptcy.
[Read: Cards for Bad Credit]
Is a Debt Management Plan Right for You?
Debt management plans are not for everybody. But for some people, they can be the key to breaking the cycle of debt. Wetzeler says the best candidates for a debt management plan:
— Pay high interest on credit cards. “You don’t have to be late or past due to qualify for a DMP,” she says.
— Juggle multiple creditors. A debt management plan makes sense if you want to consolidate so that you have just one payment each month.
— Have maxed out or approached their credit limits. “Maxing out your credit card increases your credit utilization ratio, which is one of the bigger factors in your credit score,” Wetzeler says. Financial experts recommend keeping the ratio — the percentage of total available credit you’re using — below 30%.
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Everything You Need to Know About Debt Management Plans originally appeared on usnews.com
Update 01/13/26: The story was previously published at an earlier date and has been updated with new information.