Debt Management Plan
If you are having trouble with credit card debt and/or other debt, you may consider a debt management plan (DMP) through a reputable, non-profit credit counseling agency. A DMP may help you eliminate credit card debt faster by working with your creditors to bring your accounts current, lower interest rates and eliminate fees. This means that more of your payment goes toward reducing your account balances. An added benefit is that once the DMP is established, diminishing collection calls and creditor balances help reduce worry and stress about your debt situation.
How a DMP Works
Reputable companies will always start with a confidential, free debt counseling assessment of your current situation. A counselor or advisor will ask a lot of questions to thoroughly assess your household income and expenses. Throughout the assessment, education is provided to help find places for you to reduce expenses and save money, explore other feasible options, and develop a customized budget and debt management action plan to achieve your financial goals.
The DMP helps you eliminate credit card debt faster by bringing accounts current, lowering interest rates and waiving late and over the limit fees. Deposits are made directly to the agency, and monthly disbursements are made on your behalf to the creditors to begin the process of paying down the debt. You make one or two affordable deposits each month – and the agency pays your creditors. A deposit schedule will be created that ensures all payments are received by your creditors prior to the due dates.
This is not debt settlement. A DMP is typically set up to pay off 100% of your unsecured debt within five years. Because many creditors agree to lower interest rates, more of your payment goes toward reducing the principal balances, and less is applied towards interest charges. Collection calls and letters will typically stop after 2-3 successful months on the program.
Some debt management programs give you the added option to include other priority payments on the plan, such as the mortgage, car payment, and/or utilities. This functions as a great money management tool to assist you in remaining current on your bills, and allows you to focus your efforts on the household expenses.
In general, all open lines of credit are closed while you are active on a DMP. The best way to successfully complete a DMP and liquidate your debt is by including all cards on the program.However, if you need to keep one card for emergency or business purposes, you and your counselor should discuss the situation and evaluate your options.
There is no charge for a debt counseling session.
Will a DMP affect my credit report?
GreenPath, like other credit counseling agencies, does not report any information to credit bureaus. Only your creditors report information, and there is a wide variance in the way they do so. The impact on your credit report may be positive or negative, depending on your situation and the specific creditors involved. Once your credit lines are closed, you may notice an initial dip in the score because the scoring formula factors in amount of available credit.
We recommend that you take a long-term approach. Focus on resolving your financial situation and your credit report will improve over time. Paying bills on time is the single most important contributor to a good credit score. Any late payments are viewed negatively by lenders, and remain on your credit report for seven years.
Support When You Need It
Keep in mind that, while on a debt management plan, you will have the help of a financial coach throughout your program. We understand that you may encounter some bumps along the way and you will always have the guidance of your counselor and an account maintenance representative if your financial situation changes. We know that it can be very hard at the beginning of a program, especially if you have to make major changes to your budget. We encourage new clients to keep us informed of their struggles so we can offer encouragement to get you through this tough time. But remember that short term pains equal long term gains and your ultimate goal of paying off credit card debt.
Suze Orman discusses Credit Counseling, Debt Management and Debt Settlement.