DMCC offers eligible consumers the ability to lower their monthly credit card payments and consolidate them into one easy payment through its debt management plan program. Debt management plans are offered to consumers in cooperation with their creditors, who in most cases agree to reduce interest rates, eliminate past due and over-limit fees, stop collection efforts, and report the accounts as current to the major credit bureaus. This is a very important distinction from debt settlement plans, which are generally adverse to a consumer’s creditors and negatively effect consumer credit reports severely.
Debt management plans are available to consumers who need assistance in repaying their credit cards as a result of an unforeseen hardship. Each of the major credit card companies has their own specific qualifications for an account holder to be eligible for their debt management plan benefits, but for the most part, they all share the following in common:
- Consumer must have a financial hardship preventing them from paying contracted minimum payments on account.
- Consumer must receive budget counseling from an accredited credit counseling agency and be able to afford debt management plan payment.
- Debt management plan payment must provide for payoff of account balance in 5 years or less.
- All enrolled accounts are closed and consumer must refrain from incurring new credit card debt.
Debt management plans are designed to be beneficial to both the consumer and the creditor. The consumer is provided a repayment plan that they can afford and the creditor receives repayment of the principal amount of the debt at a fair interest rate. Specific benefits to consumers vary among credit card companies, but generally include:
- Lower monthly payments (typically 2.0% to 2.5% of account balance vs. 3.0% to 4.0% without plan).
- Consolidation of individual monthly payments to creditors into one monthly payment to credit counseling agency.
- Reduced interest rates (0.0% to 15.9% based on creditor policy and particular consumer)
- No more past due fees and over-limit fees.
- No more harassing calls from creditors; collection efforts stop.
- Accounts are reported to major credit bureaus by creditors as current.
As indicated above, credit card accounts enrolled in a debt management plan are generally reported by the creditors to the major credit bureaus as being current. Accounts that are past due at the inception of the program are usually re-aged as current after the first two debt management plan payments are received by the creditors. Continued timely debt management plan payments by the consumer will establish a positive pay history on their credit reports. The accounts may also be denoted on a consumer’s credit reports as being enrolled in a debt management plan. Although not a factor in the computation of consumer FICA scores, a creditor may consider such fact positively or negatively when making a lending decision regarding consumer.
In order to assist consumers with the consolidation of their debt payments into one monthly payment, many credit counseling agencies will allow other unsecured debts to be included in a consumer’s debt management plan, such as collection accounts, medical bills and personal loans. However, the other debt management plan benefits available for these types of accounts are usually limited.
Debt management plans are only offered by creditors through accredited credit counseling agencies that are licensed or otherwise authorized to provide such services in the state in which consumer resides. Fees charged by credit counseling agencies for debt management plan services are regulated by the creditors and most states. Charitable 501(c)(3) organizations, such as DMCC, are further regulated by the Internal Revenue Service and provide consumers ongoing education and counseling as part of their mission. These charitable organizations may receive voluntary contributions from some creditors to help them fund their programs.
Consumers interested in a debt management plan should call DMCC and speak with a counselor regarding their personal financial situation and accounts.