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Debt Management Plans

Learn About Debt Management Plans - Reputable credit counseling organizations employ counselors who are certified and trained in consumer credit, money and debt management, and budgeting. Those organizations that are nonprofit have a legal obligation to provide education and counseling.

Organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a DMP, you deposit money each month with a credit counseling organization. The organization uses these deposits to pay your credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule they’ve worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you are repaying through a DMP.

If you are paying through a DMP, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your DMP. Once the creditors have accepted the DMP, it is important to:
  1. make regular, timely payments.
  2. always read your monthly statements promptly to make sure your creditors are getting paid according to your plan.
  3. contact the organization responsible for your DMP if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.
You need to be aware that if payments to your DMP and creditors are not made on time, you could lose the progress you’ve made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the DMP, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts “re-aged” again (reported as current), even if you start a new DMP with a new counselor. That means your credit report will have “late” marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off.

If payments are late because the organization handling your DMP has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the DMP. If you do not act quickly to make arrangements with your creditors, you could incur late charges that increase your debt, lose the lower interest rates associated with the DMP, and have “late” marks on your credit report.