Should I Subscribe to a Debt Management Plan? | FilingForBankruptcyOnline.com

A debt management plan (DMP) refers to a plan laid out by a third-party, an organization that is not the debtor or the creditor. This third-party, usually a debt relief agency or a debt management company, negotiates a debt management plan with a creditor, takes money from the debtor, and makes payments to the creditors on behalf of the creditor.

What Does a DMP Cost?

Such plans look good on paper, but a DMP created by debt relief agencies can end up costing you much more than you think! Here’s how:

Debt relief agencies often charge fees for their services. These fees can come in a variety of forms, including:

Up-front, signing, or administrative fees
Ongoing monthly fees
“Voluntary” contributions, another term for various fees charged by these agencies

When agencies charge such fees to help you create and implement a DMP, they are essentially taking your money and paying themselves. Getting on a DMP with one of these agencies is NOT a free service! Consider if you could do better by using the money you are paying in fees to work with your creditors directly.

In addition to fees, these agencies can keep you in debt longer than you expect. You can also end up with effects on your credit that you did not initially anticipate when you started.

What are the Alternatives to a Debt Management Plan?

Even if you should be cautious about debt agencies and their DMP’s, it is a good idea to get on a plan for paying down your debt. This plan need not be something you pay someone to help you create, though there are reputable financial planners that can assist you.

To create a plan to pay down debt, follow these simple steps:

Write down everything you owe. Include how much, monthly payments, interest rate, etc.
Write down how much you make.
Create a budget, where you first set aside money for the necessities and even for savings, and then a clear plan for debt repayment. Some principles for paying down debt include:
- Paying highest interest rate accounts first by paying as much as possible there, while paying at least minimums on other accounts
- Using whatever money is freed up from paying that balance off to pay off the next highest interest bearing balance, and so on until one by one credit accounts are paid off

Getting Help

If you need to take more serious steps to pay off debt, such as getting a consolidation loan or negotiating with creditors to settle debt, your best bet is to work with a debt relief attorney instead of getting onto a debt management plan with a debt settlement company. Your attorney can help you talk to creditors and negotiate a plan and he also has a relationship with creditors, just as debt settlement companies do. The difference is, your attorney is held to a professional code of ethics by the nature of his profession and he must provide you with good service and treat you fairly.

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