Debt Management Plan
Also called debt consolidation, these programs help consumers that are in over their head alter their monthly payments, monthly interest, and pay off their debt faster than they could on their own. Debt management plans will freeze your credit, because you will have difficulty establishing more credit while under these programs.
These programs are offered through a credit counseling organization, a non-profit (usually) company that helps people like you evaluate debt management, debt settlement, and other repayment plans.
Debt Management Plans have three primary benefits. These benefits are simplified payments, changed interest rates and monthly fees, and reaging of the accounts.
Simplified Payments
Debt management plans require that you make your payments through the program. You will have a single payment, either automatically withdrawn via ACH or via a monthly check, and that payment will be dispursed to your creditors. This simplicity will cause you less stress, and alters the likelihood of missing a payment from forgetfulness.
Changed Monthly Costs
While DMP programs do have a monthly payment, the creditors who anticipate getting paid on an account that they would otherwise have to write-off as uncollectable and sell off at a discount will often agree to rates in the 5%-10% range (some will even negotiate them if they get paid off fast enough). If you are in 25%-30% default rates, this negotiation in interest often means that even after paying the DMP costs and the resulting interest, you are making smaller monthly payments then before while watching your balances drop rapidly.
Reaging Accounts
One benefit of these programs that other programs lack is the reaging process. If you owe a creditor $50/month, and have fallen 3 months behind on your payments, then if you begin making a $50/month payment, you will show a series of 3-month deliquencies because each payment applies to the earliest payment. By re-aging the account, you begin making your negotiated monthly payments (perhaps $35 for that account), and the payments are considered current, not deliquent.
