Debt Management Plan
When it comes to finding relief from credit card debt, many debt relief options require you to be in good financial standing. Taking out a debt consolidation loan or doing a balance transfer requires you to have a good credit rating in order to qualify for the new line of credit; a credit card company is more likely to work with you during debt negotiation if you’ve made all your payments on time. By contrast, a debt management program can provide debt relief even if your finances are far less than perfect.
If you’ve explored your options and a debt management program sounds like the right debt relief solution—or you have questions about which option is best for your situation—call us at to speak with a certified credit counselor. With the help of a real credit professional you can get the information you need to make the right decision for your finances.
How does a debt management program work?
You enroll in a debt management program (DMP for short) through a credit counseling agency. A certified credit counselor first reviews your budget and debts to make sure you can qualify to enroll in the program. Once you’re enrolled, the debts you put into your debt management plan are combined into one, low monthly payment. You pay the credit counseling agency one payment per month then they negotiate and pay your creditors on your behalf. You continue in the program until all the debts you put in are paid off in-full.
A debt management program lowers your monthly payments, because it dramatically reduces the interest rate being applied to your debt. The interest rate on a debt management program is typically between 6% and 10%, which is much lower than the interest rate you would qualify for on your own—even with fair credit. A lower interest rate means lower monthly payments. It also means you get out of debt much faster. In some cases, consumers who enroll in a debt management plan are completely debt-free in as little as three years.
Does credit rating affect eligibility?
Unlike other debt relief options, your credit rating and credit scores are not really factors when it comes to your ability to enroll in a debt management program. The low interest rates applied to your program are possible because the credit counseling agency has established relationships with creditors, which allows them to negotiate with creditors on your behalf. As such, you can enroll in a debt management program and take advantage of these low interest rates on your debt even if you have bad credit.
Do accounts have to be current to qualify for debt management?
No. Even if you’ve been late with a few payments or missed a payment entirely, you may still be able to include that debt in your debt management plan. This makes debt management programs a good candidate for providing debt relief if you’re already falling behind. Your credit counselor can review each debt and confirm that it is eligible to include in your program. In addition, if any of your accounts were delinquent when you started your debt management program most creditors will agree to bring your accounts current once three payments have been made on time through the program.
What does a debt management program do to credit?
People often have a concern that a debt management program will negatively impact their credit, but in truth a debt management program can actually improve your credit when done correctly. Once you’re enrolled in the program, creditors cannot place any additional penalties on your credit report for any of the debts you included in the program. In addition, successfully completing your debt management program allows you to build a positive credit history, which may contribute to improving your credit rating if you are current with all your other monthly bill payments as well.
What kinds of debts can I consolidate with a debt management program?
Credit card debts are the main type of debt most consumers put into a debt management program. However, in some cases you may be able to consolidate unpaid medical bills, as well as some kinds of payday loans or cash advances. Unpaid medical bills have certain time restrictions, while only certain payday lenders allow these debts to be consolidated with a debt management program. If you have other types of debts that you would want to include, you can call . Your credit counselor will be able to assess your debt and let you know what can be included in your debt management plan.