What a Debt Management Plan can and can't do for you

Ask the Experts: Can a Debt Management Plan help me?

I have too much credit card debt. I pay all on time but I am in bondage with high interest. Is there a better way to get out of credit card debt? –Bonnie

I was wondering if you help lower the amount people owe to creditors and help with repayment? My husband and I have a lot of credit card debt due to financial problems due to health issues over last 5 years. –Rachel

Getting out of debt isn’t easy. High interest rates certainly don’t help. That's why we’re very proud, here at MMI, to be able to offer a potential solution to consumers struggling with their debt – a debt management plan.

What is a debt management plan, how does it work, and is it right for you? Let’s find out!

What’s a debt management plan?

A debt management plan or DMP is a method of repaying your outstanding unsecured debt. Unsecured debt means any debt not tied to real property, like a mortgage or a car loan.

A DMP works similarly to a consolidation loan, in that you make a single monthly payment which is then disbursed to the appropriate creditors. A DMP is a not a consolidation loan, however. In fact, it’s not a loan at all. In a consolidation loan, the lender would pay off all of the original creditors, leaving the lender as the sole creditor. In a DMP, the debt still belongs to your original creditors, the payment is simply consolidated and paid through MMI. 

What’s the benefit of a DMP?

The primary benefits of a DMP are reduced interest rates and a faster payoff time. In many cases, accounts paid through a DMP may also see recent late or over-limit fees waived or reduced. Depending on the status of the account, inclusion on a DMP also often puts a stop to any ongoing collection attempts.

Why do creditors offer these benefits?

Accounts paid through a DMP are paid in full. There are no settlements through a DMP. Paying an account in full – even an account that has gone to collections – is substantially better for your credit history.

Things come up. Plans get thrown off. People find themselves struggling financially. It happens – a lot, actually. Creditors recognize this. By coming to MMI for help you’re showing your creditors that you’re serious about paying off your debt and moving forward with your life. For creditors, it makes sense to help. Simply put, they’d much rather you paid them than didn’t.

Through a DMP you pay back your debts in full, and usually in less than five years. The concessions offered by creditors help you get out of debt and help them recover the money you charged. In the big picture, it’s a win-win.

Do all creditors offer the same benefits?

All creditors are different. Every creditor has a different policy when it comes to debt management benefits.

So would a DMP work for me?

If you’re struggling with debt, you have a few different options. Some consumers chose to take out a debt consolidation loan. Some opt for debt settlement or bankruptcy. Some just keep making payments as best they can, hoping things will get better.

A DMP would help immediately stabilize your finances and give you a much easier path toward recovery – especially when compared to debt settlement or bankruptcy.

Truthfully though, the only way to really know if a DMP is right for you is to speak with a certified debt and budget counselor. By analyzing your current situation and specific accounts, a counselor would be able to give you a clear picture of what your personal DMP would look like – including monthly payments and how long it would take to become debt free.

Fortunately, speaking with a debt counselor is always free and there’s no obligation to start a DMP. You simply get free expert advice and then decide on your own what you think is the best course of action.

Good luck!

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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