When Does A Debt Management Program Make Sense For You?

January 22, 2019

I recently worked with a woman who, after a series of life events, had accumulated many different credit cards, payday loans and other debt, and it had become overwhelming to manage all the payments required. In order to get started on digging out, she signed up for a debt management program (“DMP”). Most DMPs are basically a program that allows you to make one payment to a credit counseling agency, then the agency pays your creditors on your behalf. Sometimes they can negotiate a lower interest rate and have certain fees waived for you.

These programs are not for everyone, so first consider the pros and cons of these programs. If you do decide to pursue this as a solution, going with a non-profit credit counselor is often the most reliable way to go and can help you avoid scams. Not sure if a DMP is what you need? Here are some things to consider.

A Debt Management Program might make sense when:

  • You’re avoiding opening mail from creditors
  • You can’t seem to keep track of all the different payments and the due dates
  • You’ve already tried to negotiate repayment options with creditors and it didn’t work
  • You’re overwhelmed with the number of creditors to deal with or the balances you owe
  • You find yourself making extra payments on some debts and then falling behind in the other debt payments
  • You need someone to hold you accountable to a plan

A Debt Management Program might NOT make sense when:

  • You are comfortable contacting the creditors and working out a repayment plan – you can save on the fees and have more flexibility this way
  • You’re ok with asking the creditors for a reduced interest rate if possible and they grant it to you, making your payments more manageable
  • You think you could do it yourself and come up with a budget and repayment plan you can stick with
  • You’re looking to negotiate for a reduction in your outstanding balances – this isn’t what a DMP does, and going this route could have much longer-lasting effects on your credit score

Everyone’s situation is different, but read more about what it’s like to work with a credit counselor. Typically, someone can have their debt under this program paid off in 3-5 years. Take a look at the above and if you feel a Debt Management Program is a route that could make sense for you, it’s worth exploring.