If you have severe debt, you may be eligible to enroll in a Debt Management Plan (DMP). A DMP is a systematic way to pay down your outstanding debt through monthly payments to your credit counseling agency, who will then distribute these funds to your creditors. By participating in this debt management program you may benefit from reduced or waived finance charges, fees, and fewer collection calls. When you have completed your payments it may help you reestablish credit.
It takes approximately 36-60 months to repay debts through a debt management plan. Your accounts with creditors will always be credited with 100 percent of the amount you pay through an NFCC member agency. Debt management programs serve the dual role of helping you repay your debts while creditors receive the money owed to them.
For those with considerable debt problems, a financial counseling session is an effective first step to help you manage your finances better, and if appropriate, entering into a Debt Management Plan can start you on the road to a financially stable, debt-free life.
A DMP sets up a payment schedule for you to repay your debts. By voluntary agreement you deposit funds with your credit counseling agency each month. They send those funds directly to your creditors. If collectors call, you can ask them to contact the agency you are working with.
You may also receive a reduction or waiver in finance and/or other charges. When you have completed your payments the agency will assist you in reestablishing credit.
DMP serves the dual role of:
Your participation in a DMP may change information that is already on your credit report. If your credit report reflects that you have paid creditors as agreed in the past, a DMP could have a negative impact on a creditworthiness decision by a potential creditor, landlord, or employer because it is an indicator that you are or have experienced financial difficulties.
In addition, creditors may report that you are on a DMP and are not paying as originally agreed although they have accepted the reduced payment. Creditors have different credit reporting policies, and a Certified Consumer Credit Counselor can answer your questions about the possible effect on your credit rating.
But remember, the goal of the DMP is to develop a plan to ultimately improve your financial and credit standing.
No. As a rule, your creditors will close or suspend your lines of credit. In limited cases (for example if your employer requires you to travel) one credit card may be maintained.
When you complete the DMP some creditors may reestablish your credit based on your current ability to pay and your payment history while enrolled in the plan.
Your Certified Consumer Credit Counselor will be able to tell you if any of your creditors will consider stopping interest charges. However, the majority of creditors do not stop interest, but many lower the interest.
For the most effective and equitable treatment of your debts we need to include all debts in your DMP.