Debt management plans, otherwise known as DMP's, are offered by credit consolidation agencies to customers who are currently going through financial hardship or overextension. These customers hire the services of these debt relief firms in order to pay off all their defaulted bills. A DMP is also a good way for an individual to be able to manage their debts without resorting to bankruptcy. This debt relief option is most commonly used to take care of unsecured debts such as credit card bills, hospital expenses, personal loans, bank overdrafts, and the like. Secured debts like mortgage payments, car notes, and overdue payments for rent and utilities cannot be enrolled in a debt management plan.

How does a debt management plan work?

Prior to being enrolled to a DMP, a customer will first need to get in touch with a debt counseling agency in order to have his or her current financial situation reviewed and assessed by certified credit counselors. These consultants, who commonly work for these non-profit organizations, are specially trained to teach individuals to manage their finances by providing advice on handling their money and debts, offering free materials on financial management, holding seminars and workshops on these topics, and guiding these debtors in creating a realistic, attainable, and worry-free budgeting system. Once an individual enrolls his defaulted accounts in a credit counseling firm, it is the company's discretion to enter the individual into a DMP. Usually, the deciding factor for a person to be enrolled in this program is his or her inability to make regular payments on their debts, because they have been too large to handle, or if the applicant is currently going through a financially-taxing situation such as a lay-off or a divorce.

Not all credit counselors will hastily enroll an individual on a DMP. It is simply a case-to-case basis. Keep in mind, though, that there are debt counseling agencies that will attempt to enroll an interested party in a DMP right away, without even reviewing an individual's financial history first. There are also companies who claim to be non-profit agencies, ask for “voluntary contributions,” or charge very pricey “administrative” fees up-front. It is best to steer clear of these agencies by asking the right questions and doing thorough research on these companies.


Debt Management Drawbacks

How does debt settlement work