Debt Management Plans
If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. Don't sign up for one of these plans unless and until a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.
How a DMP Works
In a DMP, you deposit money each month with the credit counseling organization. It uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees. But it's a good idea to check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments; it could take 48 months or more to complete your DMP. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for—or use—any additional credit while you're participating in the plan..
Is a DMP right for you?
In addition to the questions already listed, here are some other important ones to ask if you're considering enrolling in a DMP:
- Is a DMP the only option you can give me?
Will the organization provide you with ongoing budgeting advice, regardless of whether you enroll in a DMP? If an organization offers only DMPs, find another credit counseling organization that also will help you create a budget and teach you money management skills. - How does your DMP work?
How will the organization make sure that all your creditors will be paid by the applicable due dates and in the correct billing cycle? If a DMP is appropriate, sign up for one that allows all your creditors to be paid before your payment due dates and within the correct billing cycle. - How is the amount of my payment determined?
Ask how the organization responds if you cannot afford the payment amount they calculate. Don't sign up for a DMP if you can't afford the monthly payment. - How often can I get status reports on my accounts? Can I get access to my accounts online or by phone?
Make sure that the organization you sign up with is willing to provide regular, detailed statements about your account. - Can you get my creditors to lower or eliminate interest and finance charges, or waive late fees?
If yes, contact your creditors to verify this, and ask them how long you have to be on the plan before the benefits kick in. What debts aren't included in the DMP? This is important because you'll have to pay those bills on your own. - Do I have to make any payments to my creditors before they will accept the proposed payment plan?
Some creditors require a payment to the credit counselor before accepting you into a DMP. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency. - How will enrolling in a DMP affect my credit?
Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, this can't be done. Accurate negative information may stay on your credit report for up to seven years. - Can you get my creditors to re-age my accounts—that is, to make my accounts current? If so, how many payments will I have to make before my creditors will do so?
Even if your accounts are re-aged, negative information from past delinquencies or late payments will remain on your credit report.
How to Make a DMP Work for You
The following steps will help you benefit from a DMP, and avoid falling further into debt.
- Continue to pay your bills until your creditors have approved the plan. If you stop making payments before your creditors have accepted you into a plan, you'll face late fees, penalties, and negative entries on your credit report.
- Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your DMP.
- Make sure the organization's payment schedule allows your debts to be paid before they are due each month. Paying on time will help you avoid late fees and penalties. Call each of your creditors on the first of every month to make sure the agency has paid them on time.
- Review monthly statements from your creditors to make sure they have received your payments.
- If your debt management plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, make sure these concessions are reflected on your statements.
Federal Trade Commission (FTC). (2012, November). In Choosing a credit counselor. Retrieved July 12, 2018, from ttps://www.consumer.ftc.gov