Sometimes Debt Management is referred to as Credit Counseling, but credit counseling and debt management are different things. The reason why they are so often used interchangeably is because a Debt Management Plan or Debt Management Program (DMP) is a solution typically recommended by a credit counseling agency.
If you have significant credit card debt at an interest rate above 15% and you are struggling to make your minimum credit card payments, you may be eligible to enroll in a Debt Management Program (DMP).
A DMP is a systematic way to pay down your outstanding credit card debt through monthly deposits to your credit counseling agency. The agency then distributes these funds to your credit card companies. By participating in this program, credit card companies may lower your interest rates and/or waive certain fees, but it is always best to check with your creditors to make certain that things are as your debt management counselor describes. In addition, any credit cards enrolled in a DMP program will be closed and you will never be able to use them again. If you have more than one account with the same creditor/credit card company, the other account(s) will also be closed.
A Debt Management Program serves the dual role of helping you repay your debts while creditors receive the money owed to them. It takes approximately 36-60 months to repay debts through a DMP. Your one monthly payment is used to pay your credit cards according to a payment schedule that is contractually agreed upon between your creditors and the Debt Management agency.
Creditors will record on your credit report that you are on a DMP and are not paying as originally agreed although they have accepted the reduced payment. This will have a negative impact on your credit rating, because it is an indicator that you are or have experienced financial difficulties.
Usually there is no fee for the initial consultation with a credit counseling agency. If you decide to participate in a DMP, fees typically include a one-time set-up charge and a modest monthly fee, determined by your state of residency. These fees are included in your monthly debt management payment plan.
Also be wary of Debt Management Programs that demand payments before your creditors have accepted you into the program. As with any business, there are some that operate with good ethics and some that do not.
Missing a scheduled payment while in the program may be grounds for creditors to drop a client from the program.
