Debt management plan (DMP) is an agreement between a
debtor
A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of th ...
and a
creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
that addresses the terms of an outstanding
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The d ...
.
This commonly refers to a personal finance process of individuals addressing high
consumer debt. Debt management plans help reduce outstanding,
unsecured debts over time to help the debtor regain control of finances. The process can secure a lower overall
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...
, longer repayment terms, or an overall reduction in the debt itself.
Overview
DMPs for consumers are often negotiated by a
credit counseling agency on behalf of the debtor.
Credit counseling agencies often address the debt by working with the debtor to set a budget based on their regular
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...
and
expenditures that will then include one regular bill payment that is allocated across the creditor(s). Agencies will negotiate on behalf of the debtor to lower payments and interest rates with creditors. Some of the agencies are non-profits that charge no or non-fee rates, while others can be for-profit and include high fees.
The effect on the debtor's overall