Using a Debt Management Program

A DMP could help you get out of debt faster, even though you may pay less each month.

If you’re having trouble paying off high-interest rate credit card debt on your own, a debt management program (DMP) may be the solution. It can help you pay off debt faster in a way that works for your budget by minimizing interest. In the right circumstances, it can save you serious time and money as you get out of debt. What’s more, you don’t need good credit to qualify, meaning it can work for you even when other solutions like debt consolidation can’t.

This guide will help you understand how a debt management program works and how you can decide if it’s the right solution for you. If you have questions or would like a free debt analysis to see how much the program you help you save, call 1-888-294-3130 to connect with a certified credit counselor.

What is a debt management program?

A debt management program or plan (also called a DMP) is a repayment plan designed to help you eliminate high interest rate credit card debt. You enroll in the program through a credit counseling agency that helps you find a monthly payment that works for your budget. It’s not a loan – just a better, more efficient way to pay off your credit cards and other unsecured debts. Think of it like a professionally-assisted consolidation and repayment plan.

How debt management plans work

What is a debt management program?

  1. Before you start the process to enroll in a DMP, you go through free credit counseling to make sure it’s the right fit.
  2. A certified credit counselor reviews your debts, credit and budget to answer two key questions:
    1. Are you eligible for the program?
    2. Do you have any better options for relief?
  3. If a DMP is the best choice for your unique financial situation, the counselor works with you to find a monthly payment that will fit your budget.
    1. Fees are included in the monthly payment, so you don’t need to worry about an extra bill. Click here for more details about plan fees.
  4. Then the credit counseling team contacts each of your creditors to negotiate three things:
    1. To get your creditors to accept payments through the program
    2. Reduce or eliminate the interest charges on your accounts
    3. Stop future penalties and penalty fees.
  5. Once all your creditors agree, your program officially starts.
  6. You make one payment to the credit counseling agency and they distribute the funds to your credit on your behalf.

Types of debt you can include in the program

Credit cards

A DMP is primarily designed to help you find relief from credit card debt. This includes:

  • General purpose credit cards, like Capital One and Chase
  • Charge cards, such as American Express
  • Store credit cards, such as Amazon, Lowe’s and Macy’s

See the full list of over 6000 creditors that Consolidated Credit works with »

Unsecured debts

You can also include most other types of unsecured debt, including:

  • Personal loans
  • Consolidation loans
  • In-store credit lines for furniture and electronics

You cannot include student loans or any secured loans, such as a mortgage or auto loan. In some cases, you may be able to include payday loans. However, this is contingent on whether the payday lender agrees to allow you to include their account in the program.

Collection accounts

You may also be able to include collection accounts for unpaid medical bills, service contracts and utilities. However, these types of accounts do not have interest charges, so you lose one of the primary benefits of enrolling. Still, if you simply want to get all your collection accounts paid and roll them into the program, the counseling team can contact the collectors to see if those debts can be included.

Find out how much you could save

Just tell us how much you owe, in total, and we’ll estimate your new consolidated monthly payment.

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With this amount of debt, you'd pay around

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This estimate compares paying your credit card debt on your own vs. the potential benefit of using a Debt Management Plan through completion. IT'S NOT AN ACTUAL QUOTE. Estimate is based on 2.1% of your balance owed. Actual interest rates will vary by consumer and creditor – yours could be higher or lower. Consolidated Credit Solutions, Inc might be able to reduce your interest rates and late fees allowing you to pay off your credit card debt quicker (since more payments are applied to your principal balances, saving you lots of money in the long run). To complete the program, you must make on-time payments each month. Late or missed payments may cause your program to be cancelled and in that event, this estimate would not apply to you.

 

Comparing debt management program pros and cons

Every debt relief solution has its upsides and downsides. The best solution for one person may not fit the needs and goals of another. So, deciding if a debt management program is the right solution really depends on goals.

Here are some real numbers for how Consolidated Credit’s program benefits people who enroll:

  1. Clients see their total credit card payments reduced by up to 30-50%
  2. Negotiated interest rates average between 0% and 11%
  3. Most clients complete the program within 36 to 60 payments.
Pros Cons
You pay back everything you charged Accounts included in the program will be closed when you graduate
A DMP reduces or eliminates interest charges You can’t open new credit card accounts while you’re enrolled
It stops future penalties and fees  DMPs can take longer and cost more than other solutions, such as debt settlement
A DMP usually has a positive or neutral impact on your credit Getting professional help with your finances can be difficult, as most people prefer to solve financial challenges on their own
Creditors generally agree to bring pas-due accounts current after three DMP payments

Understanding the credit impact of the program

How the plan will affect your credit report

A debt management program generally has a positive or neutral effect on people’s credit scores.

  • There is no negative information that your creditors will report to the credit bureaus when you enroll or graduate from the program.
  • All of your credit cards will be listed as paid as agreed in your credit report, which is the status you want them to have.
  • In addition, each payment you make on your DMP will build a positive payment history for those accounts.

So, from a credit report standpoint, a debt management plan will have an overall positive effect on your credit history. This gives DMPs an advantage over debt settlement programs, which cause a 7-year credit penalty for every debt you settle.

How a debt management plan effects your credit score

There are some minor ways that the program can ding your credit score. Once you complete the program and the credit card companies close your accounts, this can cause a slight drop in your credit score for two reasons:

  1. It decreases the number of active accounts you have open, which is a minor scoring factor.
  2. If you close your oldest accounts, this can decrease your “credit age,” which is another minor scoring factor.

Credit age and types of accounts collectively account for 25% of the “weight” in calculating your credit score. By contrast, credit history accounts for 35% alone. This is why a DMP is usually positive for most people’s credit. They build positive credit history and that generally outweighs any slight point drop from closing some accounts.

However, if your credit score is extremely high when you enroll, you may see a slight decrease. If you have excellent credit, make sure you talk to your credit counselor about how the plan may impact you. There may be other solutions, such as debt consolidation loans, that you can use that would be a better fit.

Frequently Asked Questions

When you enroll in a DMP, your creditors will freeze the accounts that you include in the program. As you make payments, the balances of your cards will be gradually paid off. Once each balance is paid, the credit card company will close the account in good standing.

If you have accounts that are behind, most creditors will agree to bring those accounts current after three payments on the program. This can help your credit recover faster from delinquent accounts.

No. While it is encouraged to include all your credit cards in the program so you can become fully debt-free, it’s not required. You are free to leave a card out of the program to cover emergencies or unexpected expenses.

If you decide later than you want to include cards that you left out of the program, you can call the client services team. The team will work with you to add those cards into the program, so you can pay them off as well.

We can work with creditors that are not on the list of 6,000 creditors that we commonly work with. With any credit card company, collector, or financial institution you have an account with, we will contact them to see if they will accept payments through a debt management program.

In most cases, creditors and even collectors will agree to accept payments through the program because it improves the chances that you will pay off your account. The alternative is that you may try to settle the debt or declare bankruptcy, which means that you would not repay the full balances. So, it’s in your creditors’ best interest to work with you through a debt management program.

It depends on who holds the accounts that you wish to enroll in the program. If you hold your accounts jointly with your spouse, then you would need to enroll in the program together. However, if you hold the accounts individually, then you will not need to involve your spouse.

We understand that paying off debt can be difficult, especially when you are living paycheck-to-paycheck. We’re here to be your advocate as you work to get out of debt. So, if you are unable to make a payment, call us and we will work with you and your creditors to ensure you can remain on the program.

Our mission is to help you become debt-free, so we will make every effort to help you get there. We are not here to judge, so if you’re having trouble we’re here to help you get through it.

Absolutely! If you receive money from a tax refund, property sale, or a stimulus check, we will help you apply the extra payment to your plan. Simply call our client services team and they will apply the extra payment in the best way possible to pay off your debt earlier.

Currently, many of our clients are using all or part of their Economic Impact Payments (stimulus checks) to make extra payments on their programs. We encourage this—along with using the funds to build emergency savings—because it will help them achieve financial stability faster, which is essential during an economic downturn.

Enrolling in a debt management plan is entirely voluntary. You can leave the program at any time without any penalties. Your accounts will be credited for all payments made during the program, so you won’t be back to square one.

However, your creditors will most likely restore the original rates and fees that were applied to your account prior to enrollment.

See the program in action

Here are real case studies from clients of Consolidated Credit that have successfully consolidated their debt with a debt management program. You can see how much time and money they saved by enrolling in the program.

 

Written by :
April Lewis-Parks [email protected] Director of Education and Corporate Communications
Meghan Alard [email protected] Financial Literacy Specialist