A Debt Management Plan (DMP), is a program offered by a company that is owned or directly paid by the credit card company. This is a form of collection agency that claims that they represent you the consumer, but in reality have a conflicting interest with the relationship established with the credit card company.
Organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a DMP, you deposit money each month with a credit counseling organization. The organization uses these deposits to pay your credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule they’ve worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you are repaying through a DMP.
You need to be aware that if payments to your DMP and creditors are not made on time, you could lose the progress you’ve made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the DMP, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts “re-aged” again (reported as current), even if you start a new DMP with a new counselor. That means your credit report will have “late” marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off.
If payments are late because the organization handling your DMP has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the DMP. If you do not act quickly to make arrangements with your creditors, you could incur late charges that increase your debt, lose the lower interest rates associated with the DMP, and have “late” marks on your credit report.
The balance will continue to accrue interest on your accounts but at a lesser rate, typically between 8-10%. The entire balance is paid in full plus interest and the length of time is usually between 5 to 7 years. You will pay an up front fee, along with a monthly service fee. Typically, your payments will stay about the same as your current payments but instead of taking 30-40 years to payoff, you should be completed in about 7. The average consumer will pay back approximately 130% of their debt with a moderate adverse impact on their credit score. If you believe debt management is your best solution, you may apply here and a Certified Financial Advisor will assist you with the process.
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Some of the information in this FAQ was taken from the FTC. |
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