How Does A Debt Management Plan Work?
by Linda Jacob
When you enter into a Debt Management Plan or DMP, you will make a monthly payment to your DMP company, who will in turn send a payment to each of your creditors. Because you are paying back the full amount, and sending a payment each month, the creditors will work with you by offering you concessions.
The creditors will either lower the monthly payment to what they want, lower the interest rate, or a lot of times they do both. Each creditor tells the DMP administrator what they are willing to do, but the average interest rate on most plans will drop to approximately 6% to 8%. The monthly payment many times is lower than the total minimums you were originally paying, but on occasion it can be about the same as you are currently paying.
There is an enrollment fee and a monthly fee for the DMP. The interest saved far exceeds the monthly fee, and makes the plan worthwhile.
The cards will close when they are put into the plan. Some enrollees will see a small dip in their credit score when this happens. Since the creditors continue to get a monthly payment, they continue to report to the credit bureaus a great payment history, so this quickly adjusts and, in many cases, improves your credit score.
Don’t get a DMP confused with a Debt Settlement Company. When you go into a Debt Settlement plan, you make a monthly payment to the administering company, but they simply put it into a savings account. Your creditors will not get paid. After roughly six to eight months, and after your credit score has tanked, the credit card companies will sometime, not always, offer a settlement. That is when the Settlement company takes money from the savings account and pays the card.
If you are ready to pay off debt as quickly as possible with the least, if any, impact to your credit score, and do it savings thousands of dollars, call us at 800-955-5765. We would be happy to quote you a monthly payment and let you know just how much time and money you can save!