Debt management is when a debtor hires a credit counseling agency to work out a repayment plan with creditors. The resulting plan—a debt-management plan (“DMP”)—is usually three to five years in duration and will result in full principal repayment to creditors.
DMPs are a less aggressive option, at least when compared with debt settlement and Chapter 7 bankruptcy. Not all forms of debt are eligible. DMPs are aimed primarily at unsecured debt. DMPs usually will not accept secured debt, tax debt, medical debt, or student loans.
- While entering into a DMP may negatively impact your credit, chances are it will not hurt your credit as much as debt settlement or bankruptcy will.
- Credit counseling agencies are usually non-profits.
- The credit counseling agency’s fees are relatively low (usually $20 – $75 per month).
- You will only have to worry about a single payment to the credit counseling agency to cover the payments associated with those debts you enroll into the DMP.
- You likely will save a substantial amount in interest charges that otherwise would have accrued.
- DMPs often include some form of financial education and counseling from a certified financial counselor.
- Making regular payments towards your DMP can help build (or re-build) your credit rating.
- You will not have to worry about calls from creditors and debt collectors associated with debts included in the DMP.
- You need to be on top of it. If you have debts that are not included in the DMP, you need to remember to pay those debts as required.
- It takes a while. In most cases, DMPs last three to five years.
- The DMP may limit your ability to continue utilizing existing credit accounts and to open new credit accounts.
- You will fully repay all principal amounts owed.
Disclaimer: The information in this blog post is provided as general information only and should not be construed as legal or other professional advice. Evergreen Legal Protection is not a law firm. Never substitute information obtained from the internet or this blog for professional advice and guidance from a legal professional licensed in your jurisdiction.