Everyone is different with different situations; there is no one-size-fits-all answer. To understand what is right for you, you first need to understand your options. You also need to understand how things impact your credit score to know the effect your choices will have.
Try to keep these two things in mind as you read through the differences.
What is a Debt Management Program (DMP)?
It is a voluntary 100% repayment plan that you and your creditors agree to participate in for unsecured debts in an effort to help you honor the debts you owe. These debts could be, but are not limited to:
- Credit cards, medical bills, collection accounts, canceled utility service balances, canceled cell phones balances, some unsecured personal loans, etc.
- DMPs are typically managed by Non-Profit organizations like Apprisen, who utilize Federal Poverty Guidelines to determine if there is a fee for the service provided. Fees are normally minimal, less than the cost of one late fee per month on average.
- In a DMP, your creditors are paid each month as soon as the first payment is received, and continue to be paid every month as payments continue to be received.
- Participating creditors will continue to report your payment history on your credit report. If you are current and they have agreed to the program, your account will show current or paying as agreed. If you pay your DMP late, the DMP pays your creditors late; Therefore, creditors will report the account as such.
- DMP participating creditors commonly reduce and/or fix your interest rates going forward, depending on your hardship. Concessions are not guaranteed and may vary by creditor.
- Participating creditors will update your credit report monthly to reflect your new balance as you pay off your account in the DMP. In fact, your balances are normally paid down faster through a DMP due to the interest concessions given by your creditors.
- DMP participating creditors generally stop charging ongoing additional late fees and over-limit fees.
- You do not have to be delinquent or become delinquent to participate in a Debt Management Program; it is dependent on your financial hardship. Experienced counselors will educate you to help ensure you understand that facts and your role early in the program to help prevent delinquency if you are current when starting a DMP.
- Participating creditors, such as credit card companies, will close your accounts or deactivate them until the balance is paid off.
- Participating creditors can put a comment on your credit report stating, “Managed by or Paid through a Debt Management Program” for each account you include in the program. Once the account is paid off, comments are updated to include, “paid in full or paid off”.
- DMPs do not include any secured debt such as mortgage loans or auto loans, student loans, owed income taxes or property taxes, payday loans, or cash advance loans.
In short, when I counsel someone experiencing financial hardship and they have not been able to pay off or manage their unsecured debt on their own, I review all options available to them during a Financial Counseling Session. A Debt Management Program is just one option. DMPs are not right for everyone. We first discuss your options for addressing the debt, if you have the means to do so on your own, we will also explore that.
If you are still not sure if a Debt Management Program is right for you, speak with one of our Certified Consumer Credit Counselors by calling 1-800-355-2227 and request a Financial Counseling Session. We also offer online counseling- Get Started. There is no cost or obligation.