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An elderly man giving his grandson a hug and smiling after signing up for a debt management plan

When the bills pile up and it’s hard to get caught up, a debt management plan can get you back on track.

For those who have had a setback, where life hasn’t gone as planned, debt can just be just another weight holding people back. Sometimes all it takes is having someone walk through your situation with you and show you where to cut costs, help create a budget and bring hope with a plan for a better financial future. A financial counseling session is a great first step toward reaching your goals.

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What is a Debt Management Plan (DMP)?

Debt Management Plans are a tool offered by nonprofit credit counseling agencies as a means of getting you back on the road to a financially stable, debt-free life. Your dedicated financial counselor can also help you determine if entering into a debt management plan (DMP) is appropriate and if not lay out all your available options.

How this works

First, an NFCC certified financial counselor helps set up a voluntary agreement between you and your creditors. People who sign up for a DMP, make one lump payment each month to the nonprofit agency who then sends those funds directly to your creditors.   By participating in this type of debt management program, you may benefit from reduced or waived finance charges or fees, and experience fewer collection calls. When you work with an NFCC agency on a debt management program, your accounts are credited with 100 percent of the amount you send in. When you have completed your payments, the fact that you did repay your debt in full, and according to the plan, may help you re-establish credit. Having a set lower monthly payment, takes the pressure off of your budget and enables you to build your personal savings or even purchase your first home.

Debt management plans and your credit

Participating in a debt management program won’t have any negative effect on your credit score. Though there will be a note in your credit report that says you’re enrolled in a debt management plan, it’s not something FICO uses when determining a credit score. *In fact, certain aspects of a debt management plan have a positive impact on your credit score. Your timely payment history, which accounts for 35% of a FICO credit score, will positively impact the score as will the decline in the amount you owe, which makes up 30% of the score. Because you are involved in a debt management plan, there won’t be any inquiries for new credit, which is 10% of the score. Opening a lot of new accounts in a short period of time has a negative effect on your score. In the end, participating in a debt management plan will be a positive factor in terms of your credit.

The debt management difference:

Debt management plans vs. debt settlement

Not all debt relief options are the same, especially when it comes to debt management plans and debt settlement offers.

A man and his elderly father smiling and holding hands after discussing a debt management plan

Debt management plans

The positive impact of debt management plans is proven by independent research from The Ohio State University.

Independent research from The Ohio State University has demonstrated the positive financial impact of financial counseling that accompanies a debt management plan administered by NFCC Member agencies. Most of these plans allow participants to repay all their unsecured debt within a period of only three to five years, thanks to the cooperation of creditors who can reduce interest rates and eliminate fees on the enrolled accounts.

A middle-aged woman signing up for a non profit debt management program

Debt settlement

For-profit Debt settlement is a risky option that involves involves paying a for-profit company to negotiate on your behalf for the forgiveness of a portion of your total debt balance. If a negotiation is reached, the debt settlement organization will charge you a fee and you’ll still have to pay income taxes on any amount $600 or larger, which can leave you owing more money when it’s time to file your taxes.

The Federal Trade Commission, Consumer Financial Protection Bureau and countless other consumer advocates have cautioned people about the risks of dealing with for-profit debt settlement companies. In addition there are numerous complaints from people who have signed up and later regretted it on the Better Business Bureau site.


Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court that permits you to obtain a discharge of your obligation to pay certain debts. The bankruptcy laws are intended to allow an honest, but unfortunate debtor an opportunity to get a “fresh start.”

Anyone who wishes to file bankruptcy is required to go through a credit counseling session beforehand. Sometimes, it is the best choice and a credit counselor will be open and honest if they think it’s best for your financial future. To learn more about the different chapters of bankruptcy click here.

In their own words: Hear from people we’ve helped

Tiffani A.

In a few short years, I’ll be debt free and able to breathe again.