Ask the Experts: What Happens Once I Pay Off an Account?

How a debt management program works down the line to eliminate debt.

If I have 10 creditors and one is paid off before the end of my program, what happens to the money that was going towards the debt? Does more money get put to another creditor or is this your profit?

James
Chester, IL

An expert answer from Gary Herman


So the average person has between seven and ten credit cards on our program. It’s very common for one or two cards to get paid off early on in the program.

It doesn’t lower your monthly payment, we just take the money that used to go to those two credit card companies and we’ll send them to the rest of your creditors.

In general, we’ll usually send them to the creditors that are charging you a higher interest rate. So it saves you more money and gets you out of debt faster.

When one debt gets paid off, the money that was used towards that debt gets moved over to make larger payments on the next highest interest debt. On a typical debt management program, interest rates are dropped to 8-10 percent, but some creditors can go to zero percent. Your monthly payments “cascade” in a way, where money gets moved down the line until everything has been dealt with. So when you pay off one debt, you speed up the payoff on other debts to pick up momentum.

That being said, at the end of your program once you’ve successfully paid off your debts, the counselor may ask if you want to make a contribution so the organization continue to help other people in similar situations to what you faced. This is not required and there’s no penalty or even hard feelings for saying no. If you have the means to pay it forward, great.

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With this amount of debt, you'd pay around $xx.xx on a DMP.

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