If you are finding it challenging to make a dent in your debt because you have high interest rates on your credit cards and/or loans, you could consider two options. You could take a DIY approach, reaching out to your credit card issuer directly and asking if you’re eligible for a hardship program. These programs can temporarily lower your interest rate and waive fees.
Or you could meet with a credit counselor, who can help you create a budget, find ways to reduce your debt or enroll you in a debt management plan (DMP). Under these plans, a credit counselor works with your creditors to lower your monthly payments by administering a structured repayment plan that often reduces interest rates and waives or reduces any fees or penalties. The actual amount of the debt itself doesn’t change.
Average Plan Length
Average Interest Rate Reduction
Average Fee Per Enrolled Debt*
DMPs are for unsecured debt, mainly debt that comes from credit cards and personal loans that aren’t tied to an asset like a house or a car. Each month you deposit money into an account held by the credit counseling agency, which then pays your creditors.
Before enrolling in a DMP, here is a simple calculation you can do to see if you can afford the monthly payments: Add up all your credit card debts that will be in the plan. If you can afford just 2% of the total as a monthly payment, it may be a good option for you. Keep in mind: The DMP will have fixed monthly payments for up to five years. Missing payments could nullify the plan and result in your interest rates returning to their higher levels.
Can I arrange my own DMP?
You cannot arrange a DMP on your own. You must use a credit counseling agency licensed in your state. However, you can contact your creditors individually to see if they offer hardship plans.
What does a DMP cost?
Cost for this service generally ranges from 1.7% to 2.5% of the total balances of your enrolled accounts. These plans are highly regulated, so fees vary by state. A certain percentage of people enrolled in a DMP will not pay a fee. The most common fee structure is $10 per account enrolled, but not to exceed $50. So, if you had 10 different accounts rolled into the plan, you would not pay $100 a month; you would only pay $50. If you had three accounts, your fee would max out at $30 a month. In addition, credit counseling agencies typically have criteria for when they’ll reduce your fees or eliminate fees entirely if you qualify.
Will I save money with a DMP?
On average, your interest rate for credit cards and bank loans is reduced to 6%, which results in lower monthly payments.
How long is a DMP?
The DMP generally lasts four to five years and cannot exceed 60 months.
How does a DMP impact my credit score?
What will appear on my credit reports?
Positive, closed accounts will show on your credit reports after you complete your DMP.
When can I get a loan or a new credit card?
You can apply for student loans, mortgages and car loans while in a DMP, but we recommend waiting until after completing your DMP to apply for new credit cards or other unsecured debt.
If you decide that a DMP is the right option for you, you’ll need to contact a licensed credit counseling agency in your state. Both the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) are good starting places for finding accredited agencies, which should have counselors certified and trained in consumer credit, money and debt management, and budgeting.
The FTC cautions consumers to avoid agencies that won’t provide free information about their services without requiring that you provide information about your situation. Once you identify some potential agencies, you can check to see if there are any complaints against them with your state Attorney General and local consumer protection agency. The FTC recommends that you then narrow your list to a few companies you will interview to make your final selection. Some of their recommended interview questions include:
Questions to ask a credit counseling agency — This FTC article includes a list of questions that can help you select the right credit counseling agency.
Assess your debt calculator — Helps you answer the question, “Do I have too much debt?”
Debt settlement agreement — Build the contract for your settlement documenting the criteria you negotiate with your creditor.
Debt consolidation calculator — Assess if debt consolidation is a viable option for you.
Credit card payment calculator — Discover how long it will take to pay off your current credit card balance.
While the tools listed above can help you explore your options for getting out of debt, you may find it challenging to determine the best course of action for your situation. That’s where Resolve comes in. Our primary goal is to assess your personal situation and help you understand your options, including enrolling in a debt management plan.
Our Resolve decision-making tool and debt guidance are free. You can review and compare debt relief paths and ask our experts questions without cost. If you then choose to work with one of the service providers in the Resolve Network, we would inform you of the fee for their service.
If you haven’t yet created a Resolve account, you can get started here.
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