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 this ...

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 ...

. This commonly refers to a personal finance process of individuals addressing high

consumer debt In economics, consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. In macroeconomic terms, it is ...

. Debt management plans help reduce outstanding,

unsecured debt In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the t ...

s 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, th ...

, longer repayment terms, or an overall reduction in the debt itself.

Overview

DMPs for consumers are often negotiated by a

credit counseling Credit counseling (known in the United Kingdom as Debt counseling) is commonly a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce and ultima ...

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. For ...

and

expenditures An expense is an item requiring an outflow of money, or any form of Wealth, fortune in general, to another person or group as payment for an item, service, or other category of costs. For a leasehold estate, tenant, renting, rent is an expense. Fo ...

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

credit score A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bu ...

will vary. In the United Kingdom, as well as DMPs, residents can also apply for an Individual voluntary arrangement (IVAs), which can give the debtor a discount on their debt.

Regulations

United States

In the United States, credit counseling agencies are loosely regulated by the

Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...

(FTC), the nation's consumer protection agency, which can sue companies that have deceived consumers about the cost, nature, or benefits of their services. Different states may regulate DMPs individually and

attorneys general In most common law jurisdictions, the attorney general or attorney-general (sometimes abbreviated AG or Atty.-Gen) is the main legal advisor to the government. The plural is attorneys general. In some jurisdictions, attorneys general also have exec ...

are empowered to protect state citizens from fraud.

United Kingdom

In the United Kingdom, the

Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...

is responsible for the regulation of consumer credit and has established a Debt Management Plan Protocol. It can impose fines for improper conduct.

European Union

Elsewhere in the European Union, regulation and non-regulation of credit counseling agencies and their approaches, including DMPs, are widely varied. In

Sweden Sweden, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic country located on ...

, guidelines for credit counseling are loosely provided by the

Swedish Confederation of Professional Employees The Confederation of Professional Employees ( sv, Tjänstemännens Centralorganisation, TCO) is a national trade union centre, the umbrella organization, umbrella organisation for 13 trade unions in Sweden that organise professional and other qual ...

(TCO) and creditors are encouraged to use them in lieu of the court system. In

Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...

, the

Irish Congress of Trade Unions The Irish Congress of Trade Unions (often abbreviated to just Congress or ICTU), formed in 1959 by the merger of the Irish Trades Union Congress (founded in 1894) and the Congress of Irish Unions (founded in 1945), is a national trade union centr ...

(ICTU) provides debt resolution information directly to debtors. In

Latvia Latvia ( or ; lv, Latvija ; ltg, Latveja; liv, Leţmō), officially the Republic of Latvia ( lv, Latvijas Republika, links=no, ltg, Latvejas Republika, links=no, liv, Leţmō Vabāmō, links=no), is a country in the Baltic region of ...

, a debt advisory company called LAKRA works with employers to assist indebted employees.

References