What is a Debt Management Plan?

A Debt Management Plan (DMP) is simply allowing a credit counseling agency to manage your debt or finances for you. When you enroll in a debt management plan you deposit funds every month with the credit counseling organization. They then use your deposits to pay off all of your unsecured debts. Credit card bills, student loans, and medical bills are paid off in a manner that has been agreed upon by the creditors and your credit counselor. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. All DMP programs require you to make timely payments. In most cases the debt is paid off within three years.

After completing a budget you and the counselor will then be able to determine what is a realistic monthly payment that you can afford. While you are in the Debt Management Plan you can not apply for or accept any new credit. For some people this can be a problem. This shouldn’t be looked at as a negative. In fact for many people it’s a great way to change behavior that might have contributed to them falling into debt in the first place.

Some things you should know about DMPs.

You should know that if payments to your debt management plan (creditors) aren’t made on time, its possible that you will lose the progress that has been made while paying off your debt. It is also possible that the additional benefits of being in a debt management plan such as; reduced interest rates, forgiveness of late fees and over limit fines might be lost. If you don’t make your payments on time you won’t be eligible to have your debt accounts “re-aged” (reported as current). You could then start to rack up more late fees and that would be counter productive to getting rid of your debt.

So in other words, make your one single payment on time every month!