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 counselling 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.
How debt management programs work
- First, a credit counsellor reviews your budget, debt and credit. They’re checking for two things:
- Are you eligible for the program?
- Do you have any other options for relief?
- If a DMP is the best choice, the counsellor helps you work out a repayment plan that fits your budget.
- Then they contact each of your creditors. Your creditors agree to adjusted repayment plan and to reduce or eliminate interest charges on your accounts.
- You make one payment to the agency and they distribute the funds to your creditors on your behalf.
- During enrollment, there’s a freeze on your accounts. Your counsellor 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.
Get results faster than you think, for less each month
The reason debt management programs work centers on interest rate negotiation. Nonprofit credit counselling 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.
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.
How a DMP can actually improve your credit
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.
#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.
#2: DMPs are largely the same, no matter where you go
Credit counselling 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 law and typically capped at $69.
The only differences between programs are the extra resources and support the credit counselling organization provides.
- Understand how programs can differ
- Learn how to spot a debt relief scam from a legitimate agency
#3: A DMP is just part of the credit counselling 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 counselling teaches you to how to maintain stability. When you dive into the process, you learn to avoid traps that lead to debt.