What is a Debt Management Plan (DMP)?
A debt management plan (or DMP) is a way to get yourself out of debt and rebuild your credit by making monthly payments that fit your budget. When you're in over your head in credit card debt, a DMP is a great way to manage your debt by combining all your credit bills into a single monthly payment.
One of the benefits of a debt management plan is that you’ll also learn how to manage your money more effectively so that you can avoid falling into debt again in the future.
But how does a debt management plan work? Is there a cost? How do you sign up for one? Here’s what you need to know.
How does a debt management plan work?
First, let’s go a little deeper into what a debt management plan is. It’s a form of debt consolidation that allows you to make one monthly payment that covers all your included debts. A DMP isn't a loan, though. It requires no credit check and can be cancelled at any time. This is an important distinction to make as a DMP allows you to start paying off your debts without taking on any extra loans.
Once your creditors agree to the plan, you make a single payment to the facilitator of your debt management plan each month. The facilitator then takes this payment and distributes it among your creditors. This structure allows you to pay off your debt in simple steps on your way to financial freedom.
Benefits of a debt management plan
There are many benefits of using a debt management plan. For example, when you request a debt management plan, and your creditors agree to it, they will often lower your interest rate and waive any late fees that you currently have. They will also agree to a set monthly payment that has your account paid in full quickly, typically in no more than five years.
Additionally, DMPs protect you from creating more debt while you are paying off your current debts. While you’re in a debt management plan, your credit accounts will be closed and you will not be able to use those accounts for any new charges. You're also strongly discouraged from opening any new lines of credit with the idea that you’ll focus on paying off your debt rather than taking on new ones.
For most clients, the benefits of using a debt management plan (especially the lower interest rates) lead to massive savings over the course of the repayment plan. On average, MMI DMP clients save well over $40,000 using a DMP, as compared to making minimum payments on their own.
What is a debt management plan going to cost?
Debt management plans typically come with a one-time set-up fee and an ongoing monthly fee. These fee are typically small and vary depending upon the amount of debt you’re repaying and the state in which you live.
At MMI, the DMP fees are reasonable so that you can focus on getting out of debt. The average monthly fee is $25, while the average set-up fee is $39. Fees are capped at a maximum of $59 (monthly) and $75 (set-up). DMPs are intended to be affordable. If a DMP isn't in your best interest, it won't be recommended.
For most users, however, the massive savings over the course of the repayment plan make the DMP well worth the investment.
How do you sign up for a debt management plan?
To start a debt management plan, you'll need to complete a free financial review. At MMI, this process is completely confidential and most of it can be completed online for your convenience. Once a counselor has reviewed your debts, expenses, and income, they'll discuss your best options and provide payment and savings information for your estimated debt management plan.
If you like the proposed plan, you can continue by signing an agreement and providing your first deposit. Then, your plan provider will begin communicating with your creditors and sending them monthly payments on your behalf.
Read more: Is a Debt Management Plan a Good Idea for Me?
If you’re not opposed to putting in long hours on the phone, you can set up your own debt management plan. If you’re having trouble keeping up with your payments, creditors may be willing to work with you. But there’s no guarantee that you’ll receive the same interest rate reductions and other benefits if you go it alone.
Deciding to create a debt management plan can be a responsible way out of debt, but it’s not the right choice for everyone. If you’re considering moving forward with a DMP, talk to a credit counselor about your options to see if it is right for you.
