Plan Pros and Cons
Debt Management Plan Pros and Cons
A Debt Management Plan (DMP) is a structured program designed and managed by a credit counseling agency that works on your behalf to negotiate lower interest rates and monthly payments with your creditors. Instead of having to keep track of and make multiple payments each and every month to a variety of different creditors, a DMP allows you to make one streamlined payment to your counseling agency, who then manages appropriate disbursements to your creditors according to terms structured in the plan.
Creditors make concessions through debt management plans because it allows them to collect on accounts that could otherwise reach charge-off status and become worthless. Accordingly, enrolling in a DMP can prove quite useful for an individual who is burdened by high levels of unsecured debt – but it is important to fully understand the territory. Let’s now take a look at both the advantages and disadvantages of debt management plans.

Debt Management Plan ``Pros``
Above all, a debt management plan can save you money and time, as it will reduce your overall monthly expense to creditors as a result of the lower interest rates that a credit counseling agency will secure for you after negotiating with your creditors. Lower interest rates mean that a greater percentage of your blended monthly payment gets directly applied toward the principal owed on your debt, which in turn leads to you getting out of debt far sooner than you would without a DMP – usually within three to five years from initiation. Even better, if your credit profile isn’t strong, a low credit score will not impede your ability to enroll in a debt management plan.
Additionally, a debt management plan can simplify the over-complicated ongoing process of paying a variety of creditors different amounts throughout the month. The simplicity of making only one streamlined payment to a reputable counseling agency provides peace of mind while also insuring against any late fees and associated damage to a credit score and profile. Aside from enjoying lower interest rates, lower monthly payments and peace of mind, you can also expect any annoying collection phone calls to become a thing of the past once creditors have received three monthly payments through a DMP. What’s more, after debts have been paid off through a DMP, creditors often mark debts as “paid in full”. This type of language, if included on a credit report, can do wonders to restore a credit score back to health.
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Debt Management Plan ``Cons``
Once enrolled in a Debt Management Plan, all credit card accounts will be closed (with the possible exception of an “emergency” credit card remaining open) and you will be unable to obtain new credit. This closing of accounts will have an initial negative effect upon your credit score, though creditors view enrollment in a DMP as a positive development for your credit profile, as your enrollment indicates a willingness to pay your debts.
That said, it would be an extremely bad idea to pursue new credit while enrolled in a DMP, as creditors will become aware of any applications for new credit by simply viewing your credit report. This could result in creditors rescinding interest rate and payment concessions that were put into place through implementation of the DMP. Therefore, don’t think in terms of getting any new credit while you’re enrolled in a DMP. Just focus on making regular timely payments to your counseling agency and this will ensure the success of your DMP.
Additionally, only unsecured debts are eligible for consolidation under a Debt Management Plan – in other words, secured debts such as mortgages, Federal student loans, home equity lines of credit and auto loans cannot be included in a DMP. Meantime, any late payments to your counseling agency will directly result in late payments to your creditors and damage to your credit score – not to mention the possible rescindment of interest rate and payment concessions included within the DMP, thereby defeating the purpose of setting up the plan in the first place. Accordingly, you must be fully committed to the process of getting out of debt for a debt management plan to work out in the long run. Always make your payments on time.
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