A Debt Management Program (DMP) is another kind of debt consolidation, in that you consolidate all your debts into one, so you just have one payment to make each month. But unlike a debt consolidation loan, a DMP doesn’t involve borrowing money. And unlike bankruptcy, it will not discharge your debts legally. This option is often done through a non-profit credit counseling service, and is designed to get you out of debt in fewer than five years without having to involve any aspect of the legal system.
With a DMP, the credit counselling agency you choose to work with will contact your creditors and arrange a plan to repay your unsecured debts in full at a lower interest, or in many cases, with no interest at all. Creditors aren’t obligated to accept a DMP, but they’ll typically agree to one if it makes sense. Once a DMP is in place, the creditors who agree to the plan will deal directly with the credit counselling agency until your debt is paid off through their program.
Like a consolidation loan, you make one affordable monthly payment to the credit counselling agency and they disburse your payments to your creditors. There is a nominal fee to setup a program like this along with a small monthly fee (10% of your payment amount to a maximum of $75).
A DMP notation on your credit report shows that you are making payments with the help of a third party, so your credit score will be impacted while you’re on the program. However, all records of debts repaid through the DMP are erased from your credit report 6 years after you start the program or 2 years after you finish, whichever comes first. This effectively gives you a clean slate soon after you finish the program.
If you’d like more information about a debt management program, or if you want to get a better understanding of what bankruptcy is, you can make an appointment with one of our accredited credit counsellors, at no cost. They’ll lay out all of your options and help you determine when bankruptcy is your best option.