There can be a lot of questions and confusion when it comes to debt management solutions. Will it ruin my credit? Will my debts be payed off for free? Do I have to take out a loan? Is this the same as debt consolidation? A lot of people may not fully understand how each debt repayment method works, or which would be the best solution for them. To help, here is some information and what happens in a debt management program.
How Does a Debt Management Program Work?
Watch the video below for a basic rundown of how a DMP works.
I’m in a DMP. Now What?
- Any credit card accounts that you include will be closed to avoid further debt.
- The credit counseling agency will draw a lump sum from your bank account each month and make payments to your creditors on your behalf. Make sure you have the necessary funds in your account.
- The amount of the payments will be agreed upon after your counseling session, and will typically be lower than before. This may be due to the creditors agreeing to accept a lower overall payment, lower interest rates, or eliminate fees.
- Enrollment in a DMP will be noted on your credit report. This is a neutral notation that does not impact your score, but different lenders will each have their own interpretation of this information which could be negative or positive.
- You will typically be charged a one-time enrollment fee, plus a monthly fee for the duration of the DMP. These can vary by agency and location.
- You must still monitor your credit card statements each month to ensure payment.
- In most cases, the debt is repaid within 5 years.
When choosing between different debt management solutions, it’s important to understand how each method works. While it may or may not be the best solution for you, hopefully, this video and information will help you better understand what happens in a debt management program.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.