Is a Debt Management Program the Right Choice for You?

 

See how debt management programs help people get out of debt faster with payments that are 30-50% less.

High interest rate credit card debt has a way of trapping people in a cycle of payments. You make payments diligently, but never seem to get any closer to zero. You need to find a better way to get out of debt. A debt management program could be the best choice to pay off your debt, while saving money. Here’s what you need to know.

What is a debt management program?

A debt management program (DMP) is a repayment plan designed to help you eliminate high interest rate credit card debt. You enroll voluntarily 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.

Learn more about a DMP »

How debt management programs work

  1. First, a certified credit counselor reviews your budget, debt and credit. They’re checking for two things:
    1. Are you eligible for the program?
    2. Do you have any other options for relief?
  2. If a DMP is the best choice, the counselor helps you work out a repayment plan that fits your budget.
  3. Then they contact each of your creditors. Your creditors agree to adjusted repayment plan and to reduce or eliminate interest charges on your accounts.
  4. You make one payment to the agency and they distribute the funds to your creditors on your behalf.
  5. During enrollment, there’s a freeze on your accounts. Your counselor helps you work out a budget that allows you to live credit-free. Once you pay off your debt in-full, you can restore your accounts wit hour creditors.

If you run into trouble making a payment, you can call the agency and they can help you work out a solution. You can leave the program at any time; your accounts are credited for all payments made.

Explore each step so you know what to expect »

Answers to common debt management program questions

Our certified team of experts answer consumer questions about debt management programs all the time to help borrowers make informed decisions on their best options to get out of debt. This playlist features video responses to all the Ask the Expert questions we’ve received about a debt management program.

One of the most common questions we receive about a debt management program regards the fees. This video explains how fees are calculated and sets the maximum you can expect to pay.
  1. What are the Fees for a Debt Management Program?

    What are the Fees for a Debt Management Program? One of the most common questions we receive about a debt management program regards the fees. This video explains how fees are calculated and sets the maximum you can expect to pay.

    What are the fees for a debt management program?

    Fees are based on your budget, how many credit cards you have and how much you owe. The average client pays about $40 a month. And while the fees vary state by state, they’re limited to $79 a month.

    Debt management program costs are governed by the Uniform Debt Management Services Act. But, here’s the best part – those fees are rolled into your debt management program, so there’s no separate cost.

    And those fees are just a small percentage of how much money you’ll save by getting rid of your debts with the reduced interest rates. You’ll pay less, while saving a lot.

  2. What Types of Debt Can't Be Included?

    What Types of Debt Can't Be Included? A debt management program can help you pay off a variety of debts, but not all of them. Learn which debts you can and can't include when you enroll.

    The main type of debt that we don’t work with – which is an easier way for me to answer your question – is anything that’s secured, which means if you didn’t make payments, is there something they can turn off or take away. If you owe money to the electric company, if you don’t pay them they’re going to turn your electricity off. Or if it’s a car payment and you don’t make the payment they’ll take the car away. Those types of debts we can’t work with. The debts that we work the best with are credit card companies, loans, medical bills, and other kinds of unsecured loans.

  3. Can I Enroll if I'm being Sued?

    Can I Enroll if I'm being Sued? If a creditor or collector takes you to court in an effort to force repayment, all is not lost! Learn how a debt management program may help you avoid a court judgment that could lead to things like wage garnishment.

    First you need to be clear that they’re actually suing you. Did you receive court documents or did someone just say to you that they may consider legal action as a next step? If a debt collector is seeking legal action, we can still contact them on your behalf and see if they’re willing to take payments. There’s nothing we can do to stop the legal action. They just want someone to contact them and tell them how much money the client can afford and set up payments. If they’re saying they’re thinking about seeking legal action or you’ve got a pending date, either way you can still join the debt management program, we’ll still contact your creditors. We can’t offer any legal advice and we can’t stop the court date, but we can still set up payments that may stick straight through your court date. Always keep in mind that enrolling in a debt management program means that a certified credit counseling team is acting and working on your behalf in negotiating with your creditors. Essentially, you can’t enroll in the program unless your creditors agree to the adjusted payment schedule you set up with your credit counselor.

  4. Are Spouses Required to Enroll Together?

    Are Spouses Required to Enroll Together? If you and your spouse hold debts jointly, then you will be required to enroll together. Learn how cosigning and authorized use affects debt management program enrollment.

    Ok, you’re asking a very good question about do a husband and wife need to be on a credit counseling account together, and the answer is it really depends on your situations. There are reasons why you would want both people on the program and reasons why you may not want both people on the program, and it would really involve me getting to know more about what your individual situation is outside of the debt management program. The only people who are obligated to participate in the debt management program are the people who are the actual signers on the accounts. These are the people who have signed the loan application, promising the credit card companies that they’re responsible for making the payments. This is different from an authorized user. You may have a credit card and you could ask the credit card company to give you another card in your husband’s name, and then he’s just an authorized user – he never signed a piece of paper saying that, “If neither of us pay, I’m still responsible for paying.” If that card is with a bank that you’re also including another card from that bank on the program that’s just in your name, you would have an issue that would affect that card. The simple answer is, if want to just put your cards on the program you can, we can do the budgeting work just on you, we can do it on you and your household, or we can do both. But in the end, if your name’s on the card you’re the only one who has to join the program.

  5. Do I Have to Close My Accounts?

    Do I Have to Close My Accounts? A debt management program does lead to a freeze on any accounts that you include in the program. However, there are options you can use to keep a card out of the program if you need it for emergencies.

    Laura from Independence, Kentucky asks if she has to close all her credit cards if she joins the program or if they stay open. You have to close all of the cards you put on the program. Creditors don’t want you to use the cards when you’re having a benefit from a debt management program. But if there’s a card that you can keep out of the program, you can do that. You can keep the card out and use it for emergencies.

  6. Can I Add Accounts to My Program?

    Can I Add Accounts to My Program? If you decided to leave a card out of the program and then you decide you'd like to include it, this video explains how to talk to your credit counselor to ensure you're on the same page.

    You can add cards to the program after you’re already on it. You just need to be careful about why that card wasn’t put on the program when you first started. Be aware if you want to leave a card off the program – for whatever reason – it’s extremely important that you talk to your counselor in advance about why you’re leaving that card off the program. If something unfortunate happens after the fact, you can add it to the program.

  7. What Happens Once I Pay Off an Account?

    What Happens Once I Pay Off an Account? As you make payments on a debt management program, you will see the balances on your credit cards gradually go down. This video explains what happens when you pay off an account completely before the program ends.

    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.

Get results faster than you think, for less each month

The reason debt management programs work centers on interest rate negotiation. Nonprofit credit counseling agencies have established connections with creditors based proven records of helping clients pay off debt. That means they can negotiate lower rates even if you’ve tried on your own without success.

If you minimize interest charges, you can get out of debt faster, even though you may pay less each month. Here are a few case studies from real clients of Consolidated Credit:

Denise from Valencia, CA

I consolidated my credit cards so fast and efficiently with this program. Consolidated Credit made it all so easy!

Where she started:

  • Total unsecured debt: $17,196.00
  • Estimated interest charges: $9,052.90
  • Time to payoff: 10 years, 4 months
  • Total monthly payments: $687.84

After DMP enrollment:

  • Average negotiated interest rate: 8.56%
  • Total interest charges: $2,557.55
  • Time to payoff: 3 years, 8 months
  • Total monthly payment: $451.00
Time Saved:
6 years, 8 months
Monthly Savings:
$236.84
Interest Saved:
$6.495.35
Wanda from North Farmerville, LA

It’s a great service that consolidated my bills into one monthly payment and lowered my interest rates. Try it! This program is for anyone that is serious about getting out of debt. They are serious about helping you. I’m so glad I called.

Where she started:

  • Total unsecured debt: $12,892.00
  • Estimated interest charges: $7,102.91
  • Time to payoff: 10 years, 4 months
  • Total monthly payments: $515.68

After DMP enrollment:

  • Average negotiated interest rate: 8.30%
  • Total interest charges: $1,920.15
  • Time to payoff: 2 years, 7 months
  • Total monthly payment: $476.00
Time Saved:
7 years, 9 months
Monthly Savings:
$39.68
Interest Saved:
$5,182.76

Weigh the benefits of a DMP

Here are some hard numbers about what we do for our client:

  • Clients typically see their interest rates reduced to between 0 and 11 percent.
  • Statistics show DMPs reduce total monthly credit card payments by 30 to 50 percent.
  • Most clients complete the program within 36 to 60 payments.

Understand the 6 key benefits of enrollment »

How a DMP can actually improve your credit

What is a debt management program?

People’s biggest concern with enrolling in a program like this is usually how it will affect their credit. Since a debt management program repays everything you owe, it doesn’t damage your credit. In fact, you build a positive credit history and improve your utilization ratio; those are the two most important factors used to calculate your credit score.

Learn how the program can improve your credit »

3 key DMP facts you need to know

#1: Debt management is not the same as debt settlement

This program is not the “pennies on the dollar program that the credit card companies don’t want you to know.” We’ve all heard those advertisements. And it’s not that your creditors don’t want you to know, they don’t want to use it. What’s more, you shouldn’t want it either.

Debt settlement is where you settle your debt for less than you owe. It lasts causes credit damage that lasts as long as a penalty for bankruptcy. Debt management simply repays everything that you owe in a more efficient way. Both eliminate your, but they do so in very different ways.

Compare these two programs further »

#2: DMPs are largely the same, no matter where you go

Credit counseling agencies are nonprofit, so plans differ very little as long as you work with a legitimate organization. Fees cover program setup and administration; they’re also controlled by state law and typically capped at $69.

The only differences between programs are the extra resources and support the credit counseling organization provides.

#3: A DMP is just part of the credit counseling process

Getting out of debt is great, but if you don’t learn better habits you can slide back into debt quickly. A debt management program helps you achieve freedom from debt, but credit counseling teaches you to how to maintain stability. When you dive into the process, you learn to avoid traps that lead to debt.

See how a DMP fits into the counseling process »