Understanding Debt Management Programs

A credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone.

In a DMP, you deposit money each month with the credit counseling organization. Those deposits are used to pay your unsecured debts. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.

Protect Yourself

Be wary of credit counseling organizations that:

• Charge high up-front and/or monthly fees for enrolling.
• Pressure you to make “voluntary contributions,” another name for fees.
• Don’t or won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.
• Try to enroll you without spending time reviewing your financial situation.
• Demand that you make payments into a DMP before your creditors have accepted you into the program.