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Debt Management Plans

A debt management plan, also known as a DMP, is a debt consolidation repayment plan setup between you and a credit counseling agency. Your credit counseling agency will work with creditors on your behalf to negotiate better terms on the debt that you currently have.


Consumers that use debt management plans are typically less than 60 days late on paying creditors. Though debt management plans with reputable credit counseling agencies have been known to help consumers handle their debt, these plans aren’t for everyone.


If you are considering a DMP, you first need to understand both the pros and cons that come with the product.


Debt Management Plan Pros


Many creditors will agree to give you breaks on interest rates which can lower your monthly payments up to 25-50%. Creditors will agree to do so because they don't want to have to write off your account as bad debt (which would generally yield them less than .20 to the dollar). It’s also a much better option for you since a bad debt write-off will negatively affect your credit score.


When working with a credit counseling agency, creditors will also waive some of the fees in exchange for you making a good faith effort to repay your debt. These expenses, such as late payment fees, are much better off going towards paying down your debt rather than adding to it.


Other benefits include:



  • The convenience of having only one monthly payment to worry about managing

  • The end of collection calls

  • Debt that is paid off in full


When you enter into an agreement with the credit counseling agency, creditors know that everyone is giving you more or less the same breaks -- so that you won't default. It's a win-win situation. Generally, you’ll begin to see benefits after 3 timely payments.


Debt Management Plan Cons


There are a few downsides to taking part in a debt management plan. However, the limitations of a DMP are usually to guarantee your ability to manage your newly consolidated debt.


The biggest drawback is that you are generally prohibited from opening new credit lines while you are enrolled in the program, which is typically 3-5 years. This is to ensure current creditors that they have a good chance of collecting the entire debt; otherwise they wouldn't cut you breaks in the first place.


You must also understand that the debt management plan doesn’t wipe the slate clean. Your debt must still be paid off with regular, monthly payments that are on time. If you don’t adhere that that stipulation strictly then you can lose the benefits you’ve been given.

Benefits of Debt Consolidation