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 propert ...

that addresses the terms of an outstanding

debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

. 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 ...

. 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 te ...

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, ...

, 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 a process used to help individual debtors overcome their debt through financial education, budgeting, debt management plans (DMPs) – known in the United Kingdom as the indiv ...

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 An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is ...

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 An individual voluntary arrangement (IVA) is a formal alternative in England and Wales for individuals wishing to avoid bankruptcy in England and Wales, bankruptcy. In Scotland, the equivalent statutory debt solution is known as a protected tr ...

(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) United States antitrust law, antitrust law and the promotion of consumer protection. It ...

(FTC), the nation's

consumer protection Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...

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 (: attorneys general) or attorney-general (AG or Atty.-Gen) is the main legal advisor to the government. In some jurisdictions, attorneys general also have executive responsibility for law enf ...

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 regulatory body in the United Kingdom. It operates independently of the UK Government and is financed by charging fees to members of the financial services industry. The FCA regulates financi ...

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, is a Nordic countries, Nordic country located on the Scandinavian Peninsula in Northern Europe. It borders Norway to the west and north, and Finland to the east. At , Sweden is the largest Nordic count ...

, guidelines for credit counseling are loosely provided by the

Swedish Confederation of Professional Employees The Swedish Confederation of Professional Employees (, TCO, literary ''White-collar workers' Central Organisation'') is a national trade union centre, the umbrella organisation for 12 trade unions in Sweden that organise professional and other qua ...

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

Ireland Ireland (, ; ; Ulster Scots dialect, Ulster-Scots: ) is an island in the North Atlantic Ocean, in Northwestern Europe. Geopolitically, the island is divided between the Republic of Ireland (officially Names of the Irish state, named Irelan ...

, 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 cent ...

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

Latvia Latvia, officially the Republic of Latvia, is a country in the Baltic region of Northern Europe. It is one of the three Baltic states, along with Estonia to the north and Lithuania to the south. It borders Russia to the east and Belarus to t ...

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

References