If you find yourself deep in debt you may be considering getting help from a professional. That could mean enrolling in a debt management program (DMP) through a credit counseling agency.
Most of these agencies are nonprofits that offer free or low-cost financial services like budget planning, housing advice, debt management and access to educational classes. It’s important to work with a trustworthy company that can help you stay on top of your debt.
How does a debt management program work?
Only credit counseling agencies can enroll you in a DMP. These are payment plan agreements that they work out with your creditors to lower your monthly payments through reduced interest rates and fees. You then make one monthly payment into an account held by the credit counseling agencies and they use that money to pay your creditors over a set period of time, possibly as long as four or five years.
A DMP can be used for unsecured debt— essentially debts like credit card debt or medical bills— that aren’t tied to a specific asset like your home. You will still owe all of your debt, but you should be paying less due to lower interest rates and/or fees and penalties.
How to choose a credit counseling agency
Finding a trustworthy credit counseling agency and credit counselor is crucial. After all, they’ll be in charge of negotiating payments on your debts as well as paying those debts. Solely being a nonprofit doesn’t mean an agency is reputable. Look for agencies that are accredited through organizations like the National Foundation for Credit Counseling or the Financial Counseling Association of America. You might also find recommendations for credit counseling agencies through your bank, or credit union.
You’ll probably want an agency that offers a variety of services from teaching budget planning to debt management. Be wary of a company that immediately tries to push you into enrolling into a DMP. A credit counselor should first discuss your financial situation with you in-depth before they recommend a DMP.
If you do end up enrolling in DMP, you might be charged a monthly fee of up to $50. In some cases, the fee might be waived.
Your debt management plan questions answered
Debt management programs are tailored to your specific debt problems. A credit counselor will get reduced payments with each creditor individually. It’s important, though, to know what to ask about a DMP and how your credit counselor will handle certain situations.
- What happens if you miss a payment? This is where it gets tricky. Missing just one payment could mean the end of your DMP because you have violated the negotiated terms with your creditors. It won’t even necessarily matter how many times you have paid on time. Missing a payment could end the plan.
- What are the rules on credit? On some DMPs, you will have to live through the duration of the plan without using any credit or taking on any new credit. Make sure you not only understand the rules, but make sure you can handle not using credit for several years.
- What will happen to your credit score? As long as you don’t miss payments on the DMP, and your credit counseling agency is paying your creditors on time, your credit score shouldn’t be impacted much. In fact, the score itself should improve the more on-time payments you make. The fact that you’re part of a DMP will be noted on your credit report.
- How long will the DMP last? Debt management plans are capped at five years without the ability for an extension. Make sure you know how long yours is and that you feel comfortable making those payments for that long.
- What debt isn’t covered? Credit counseling agencies should be able to work with most unsecured debt. That means credit card debt, store credit card, past due utility bills, collection accounts, unsecured loans and medical debt. But certain companies may have restrictions, so ask what debt is included.
How Resolve can help
Managing your debt can be a challenging process where professional guidance really pays off. If you’re considering a debt management plan, Resolve can connect you with a trusted partner for a free consultation and payment quote.If you haven’t yet created a Resolve account, click here to get started.