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What is a Debt Management Plan?
A debt management plan (DMP) or debt repayment plan is creditor-approved arrangement that allows a person, who is unable to pay off his or her debts to the creditors, to repay his or her unsecured debts according to a new repayment plan. It includes lower interest rates, reduced monthly payment and elimination of late fees and other penalties. DMP is used in the situation when a person falls into bankruptcy.
Repayment arrangement can be made by the credit counseling agency, which contacts your creditors and works out a new repayment plan suitable for both you and the creditor. As a rule, you make one payment (usually electronically) to the counseling agency, which then distributes your money among the creditors according to the repayment plan. The agency must send you the statement, where you can see money distribution among your creditors. If you find out that your creditor didn’t receive money, immediately contact your counselor.
In most cases DMP takes from 30 to 60 months to complete the debt. When you are enrolled in a repayment plan, you are not eligible to take additional credits or incur any additional debt. Keep in mind that DMPs cover only unsecured debts. Hence, if you have secured debts, such as a car loan or a mortgage, you should continue making your payments directly to your creditors. Otherwise, you will lose your property.
Generally counseling agency charge a modest monthly fee for a provided services. Agencies that are members of the National Foundation for Credit Counseling and the Association of Independent Credit Counseling Agencies are bounded by standards that limit the charges for the provided services. Along with these standards, some sates also have strict limitations. Always ask the agency how the charge will be if you agree to take their services. If the payment will be on a “voluntary” basis, avoid such agencies.
