What Are the Advantages of a Debt Management Plan?

Debt management plans (DMPs), also called debt repayment programs, are programs enacted by consumer credit counseling services on your behalf. When you enroll in one, a counselor will look at your current financial situation, including all income, expenses and debts owed. They will then help you draw up a budget to get you back on track financially, without the need to file for bankruptcy -- and that's just one benefit.

Fiscal

Counselors for services that offer DMPs negotiate with your creditors on your behalf to lower your interest rates. Additionally, they may be able to convince creditors to waive any late fees or other charges depending on your situation. While they may not necessarily be able to reduce your existing balance, even a small reduction in your interest rate can make a big difference in how quickly you are able to pay off the principal.

Personal

If you are considering a DMP, chances are good that you have received some calls from collection agencies. Enrolling in a DMP can get those calls to stop, although it might not happen immediately. If they do continue to call directly after you have enrolled in the plan, simply refer the collection agency to your plan's customer service hotline, and tell them you have enrolled in such a program. Simply knowing that your bills are getting paid on time and reported to the three national credit bureaus also clears away the stress you may be feeling prior to addressing your debt problems.

Credit History and Score

DMPs do not, in and of themselves, affect your credit history or score one way or another. However, since enrollment in a DMP closes your outstanding unsecured debt accounts, this may affect the account age portion of your credit score. The good news is that, if you are considering a DMP, you probably have some late payments on your account already. If this is the case, enrollment in a DMP will likely improve your credit history and score as you build a record of paying your obligations on time, month after month.

Time

As of February 2011, the maximum amount of time that accredited and reputable DMP providers can have you enrolled in such a plan is 60 months. Consider this in conjunction with the interest rate reductions and waived fees your DMP secured on your behalf. This combination of things means that your debts will be paid down sooner than they would if you had continued to struggle on your own month to month, since more of your money will go toward paying down your principal.