What is a Debt Management Plan?
A Debt Management Plan typically consolidates your unsecured credit card debts into one payment. Now you will only make a single payment (you will have a choice of dates to pick from) directly to a consumer credit counseling agency, which then distributes your funds to your creditors. It is not a loan.
What type of debts can be enrolled into the DMP/Debt Management Plan?
Most unsecured debts including credit cards or store cards, gas station cards, medical bills, unsecured signature loans, collection accounts and many others. No secured debts such as real estate, automobiles (unless it’s a repossession), or loans secured by real or personal property.
How does the Debt Management Plan work?
A DMP negotiates your monthly payment and various benefits such as lowering of interest rates with creditors. They also notifies your creditors that once your enrolled into the program and places a request with your creditors asking them to reduce and or eliminate your interest on your accounts, as well as reduce or eliminate your late fees and other many other charges. The creditors are also asked to update your credit report and bring it current. This is called re-aging the account.
Does the interest rate get reduce on all the accounts?
The majority of creditors will agree to reduce or eliminate interest on accounts. These concessions depend on the creditors, the account balance, type of account, payment history, and other details. Certain creditors, particularly those that do personal loans, often will not lower the interest rates.
Will my monthly credit card payment be less through the Debt Management Plan?
What happens to my accounts when I enroll in the Debt Management Plan?
Upon enrollment, your accounts are frozen or closed until you finish paying them off. Once you have paid your accounts, you may request from your creditors to reopen your accounts or you may reapply for a new account.
What happens to my credit rating upon enrollment in the program?
The goal a DMP program is to help you conserve your good credit. If you have been late with payments the DMP program asks your creditors to re-age your accounts and mark them current after you have made three consecutive payments in the program. Your creditors are the only ones who can report your payment history on your credit report. Your creditor may add a notation to your report stating that you are making payments through a consumer credit counseling agency. This notation has no effect on your FICO score and should be removed when you have completed paying off the creditor. Simply by enrolling into a DMP program will not affect your current credit score.
Say you are attempting to repay two credit cards on one loan with interests’ rates of 15%, 25%, and 20% accordingly. This amounts to an average 20% interest rate. The amount of the loan is $13,000. You have a balance of $15,000 and $12,000 on the two credit cards for a total debt of $40,000. A good DMP will combine these debts into one monthly bill and thereby lower interest to about 8%.
Ultimately, you would pay $800 per month and end up paying a total of less than $10,000 over the course of 60 months. Without this debt management plan, you face nearly $50,000 in interest alone and would take 376 months to settle your debt. When you take a good look at the numbers, the benefits of a DMP are clearly the smart move to make.
Give us a call or inquire online, we will help to evaluate your situation to see is DMP is correct move for your individual situation.