The Downsides of Debt Management Plans: What They Don't Tell You

Bills Bottom Line

A debt management plan (DMP) could lower your interest rates and simplify your payments. But that doesn't mean it's the right move for everyone. A DMP doesn't reduce your balance, your credit cards will likely be closed, and your monthly payment may still feel high. If your budget is already tight or your income is unpredictable, a DMP can be hard to sustain. Before you sign up, make sure you understand how the program works and what the real tradeoffs look like.

A debt management plan sounds simple: lower interest, one monthly payment, debt gone in a few years. But the details matter.

Maya had been paying her credit cards on time for years — and barely making a dent. When a nonprofit credit counselor offered her a DMP, she thought she'd finally found a way out. Lower interest. One payment. A clear end date.

Then she learned more: not all her creditors had agreed yet. Every card would be closed. And the monthly payment would still be tight. What looked like relief started to feel like a trap.

If that sounds familiar, you're not alone. A DMP can help — but the tradeoffs are worth understanding before you sign up.

You still owe the full balance

A debt management plan doesn't reduce your principal balance. The goal is to make your debt more manageable by lowering your interest rate, not by negotiating down what you owe.

For some people, that's exactly the structure they want. For others, especially if they're already falling behind, a lower interest rate may not be enough to create real breathing room.

Credit counseling agencies typically get paid by creditors when you make payments. It's a standard part of how the industry works and doesn't change the fact that you're repaying everything you owe.

Fees can add up over time

Even though most credit counseling agencies are nonprofits, a DMP usually includes:

• A one-time setup fee
• A monthly maintenance fee

These amounts vary depending on your location and your financial situation. Many agencies reduce fees for hardship, but you usually have to ask or provide documentation.

Over a three- to five-year plan, the total cost can be more than expected, especially when your budget is already tight.

Not all creditors agree to participate

Many major credit card companies work with DMPs, but participation isn't guaranteed.

If a creditor chooses not to join your plan, you may end up juggling your DMP payment plus a separate payment for that account. That defeats part of the convenience that attracts people to DMPs in the first place.

When you enroll, your final monthly payment isn't locked in until every creditor responds, and that can take time.

Your credit cards will be closed

Almost all DMPs require that participating credit cards be closed. This helps prevent you from taking on new debt while you're trying to pay off what you already owe. You might also be asked to refrain from using credit cards that aren’t enrolled in the plan. Again, this is to help you avoid taking on new debt while you’re getting a special deal from your current creditors.

Closing accounts does affect your credit in the short term, especially if you lose a significant portion of your available credit. Over time, as your balances go down, your score could stabilize, but it's still a major change to be prepared for.

Missing a payment can cause setbacks

Staying current is essential. If you miss a payment, some creditors may remove the reduced interest rate they agreed to. What happens next depends on the creditor. Some will revoke the lower rate. Others might give you more flexibility. But missing payments puts those concessions at risk.

A DMP doesn't automatically adjust for job loss, medical issues, or other financial disruptions. If your budget is fragile, that lack of flexibility can be stressful.

Completion rates aren't as high as people expect

A DMP requires three to five years of consistent payments. That's a long commitment when money's already tight.

The numbers tell a sobering story:

• A National Foundation for Credit Counseling-related poll (reported by Fox Business) found around 21% of participants completed their DMP, while more than half did not finish.
• Cambridge Credit Counseling, which publicly shares data, reported a completion rate of 42.9% for a specific cohort.

Success depends on your agency, your income stability, and your situation. But the pattern is clear: a lot of people don't make it to the end.

What to consider instead

A DMP can be a solid fit if:

• Your income is steady
• Your debt is manageable at a reduced interest rate
• You want structure without impacting your credit as much as settlement or bankruptcy

But if your payments already feel unaffordable, or if you need your balance reduced, not just your interest, other options might meet your needs better. It’s possible to switch from one debt solution to another. Here's what else to consider:

• Talking directly with your creditors about hardship programs
• Looking into debt settlement options. This is when your creditor agrees to accept less than you owe and forgive the rest.
• Exploring whether bankruptcy relief fits your situation

What works depends on your income, your timeline, and what kind of relief you actually need.

Why Maya decided not to enroll in a DMP

After reviewing the details, Maya decided not to move forward with the DMP. The lower interest rate helped, but the monthly payment would still stretch her budget—and she wasn't ready to lose access to all her credit cards. She rarely used them anymore, but knowing they were there if something went wrong mattered to her.

Debt settlement didn't feel right either. Instead, Maya decided her next step would be reaching out to her creditors directly to ask about hardship programs. It wouldn't require closing all her accounts or locking into a multi-year commitment—and it gave her a chance to find out what options might exist before making a bigger decision.

The DMP could work for someone in a different situation—but for Maya, it wasn't the right fit. You might find yourself making a similar call once you compare the payment, rules, and risks to your own budget.

Bills Action Plan

Step 1: Ask for a full breakdown of fees and your exact monthly payment. Make sure you know the setup fee, monthly fee, and whether any creditors haven’t responded yet.

Step 2: Confirm which creditors are likely to participate.Your true monthly payment isn't final until every creditor weighs in.

Step 3: Test the payment against your real monthly budget. If you're stretching now, a years-long fixed payment may be tough.

Step 4: Compare the DMP to other relief options. Look at interest-rate reduction, balance reduction, and timeline differences so you can make a clear-headed choice.

Step 5: Don't rush. Take the time to understand how the program works before you commit.

A DMP could help, but only if it fits your financial reality, not just the ideal version of it.