If you’re not familiar with a debt management program (DMP) it’s a repayment plan that allows you to make one monthly payment to a credit-counseling agency, which then distributes the money in individual payments to your creditors. The object of the debt management plan is to get your debts paid off. You also get lower interest rates and lower payments so that you should be able to get your debts paid off faster than you would without a DMP.
How does this work?
You will first meet with a debt counselor at the credit-counseling agency. He or she will work with you to determine how much you could afford to pay your creditors. The credit-counseling agency will send a proposal to your creditors asking that your monthly payments be lowered, your interest rates reduced and your monthly payments lowered to what you can afford. If your creditors agree to this proposal and provide the requested benefits you should be able to get your unsecured debts paid off completely and much quicker than you would be able to on your own.
What does it take to be successful with a DMP?
The success of your debt management program will depend entirely on you making your monthly payments, not using your credit cards, not opening any new accounts and making better financial decisions.
How much does a DMP cost?
Most credit counseling agencies charge nothing for your initial consultation. However, you may then be charged what’s called a “maintenance” fee that could be $20 or $25 a month. This fee will most likely be added to your monthly payment so you won’t have to pay it separately.
Would a debt management plan be right for me?
Generally speaking the people who can profit most from a debt management plan are those who have fallen behind on paying their bills or have suffered a serious change in their finances such as a divorce, losing a job or a serious illness. In many cases, a DMP would be a better option than filing for bankruptcy. However, there may be other options that would better fit your situation. For example, if you own your home you might be able to get a home equity loan or a homeowner’s equity line of credit and pay off your bills. The problem with getting a loan is this doesn’t require you to change any of your spending habits so you could ultimately end up in worse shape than before.
Another possible solution would be to do a balance transfer. However, this has the same downside as getting a loan – it doesn’t reduce your debt nor does it help you change the way you manage credit
Is a DMP a loan?
No, a DMP does not involve any kind of a loan. Instead, it’s a program where you make one payment to the credit counseling agency and it then dispenses the money to your creditors. If your creditors approve your DMP you should be debt free in three to five years.
What types of debt could I include in my DMP?
You can include any types of unsecured debts such as collection accounts, credit cards, medical bills, personal loans, department store cards, old disconnected utility and telephone bills and gas cards. However, it is not possible to include any secured or collateralized debt such as your car, home, boat or motorcycle.
Could I include business credit cards in my DMP?
In most cases the answer to this would be No. There are some credit card issuers that will allow this but in most cases business credit cards are considered to be secured debts. Your creditors relied on your business financial statements when they granted you credit. As a result, they will not allow you to include this is in your DMP.
Will a DMP have an effect on my credit?
Most credit-counseling agencies will tell you that they cannot make any representation about what a DMP will do to your credit score or credit reports. Your credit standing could be enhanced, damaged or not changed at all.
Could I continue to use my credit cards?
The answer to this is also a No. When your creditors accept your DMP it’s with the understanding that you will not continue to increase your debt. Any accounts you put in the program will be closed or inactivated by your creditors if you don’t do this yourself. If there is some reason why you feel you need a card for emergency reasons your best solution would be to get a prepaid card. However, once you complete your DMP most creditors will allow you to reactivate your accounts.