Debt Management Plans (DMPs) Provide a Safe Way Out of Debt

Debt Settlement

Bankruptcy

What is the service?

Debt Management Plans (DMPs) Provide a Safe Way Out of Debt

A DMP is a structured monthly payment plan with reduced interest rates. You make one payment to the agency, which they distribute to your creditors. A DMP is usually offered by nonprofit, credit counseling agencies.

Debt Settlement

Debt settlement is the attempt to negotiate settlement of your debts with a lump sum payment. They are offered by for-profit companies or law firms.

Bankruptcy

Bankruptcy is the discharge of some or all of your debt through a federal court filing. Most people file with the help of an attorney.

What’s the cost?

Debt Management Plans (DMPs) Provide a Safe Way Out of Debt

A DMP allows you to pay off debts included in the plan in 5 years or less. The agency works with creditors to lower interest rates and create a consolidated payment plan. This allows you to avoid unnecessary interest and fees over time and reduces the hassle of making multiple payments each month.

Debt Settlement

Debt settlement companies say they will negotiate with creditors so you pay less than the full balance. This method seems good at first, but it also increases your risk of default, judgments and garnishments because they often ask you to stop paying your creditors.

Bankruptcy

There are several different types of bankruptcies. Depending on the type you file, you may repay a portion of your debt or eliminate all debt.

How does it help me?

Debt Management Plans (DMPs) Provide a Safe Way Out of Debt

DMPs include a free initial financial assessment and low monthly maintenance fees built into the payment. Fees are clearly disclosed in the offer and include free ongoing budget counseling.

Debt Settlement

Debt settlement services typically have large up-front and/or monthly fees and offer no budget counseling. Additionally, because you are asked to stop paying your creditors, the creditors may start charging more penalty fees and interest.

Bankruptcy

Bankruptcy court filing fees are several hundred dollars. Attorney fees vary.

How is my credit affected?

Debt Management Plans (DMPs) Provide a Safe Way Out of Debt

Depending upon your situation, there may be an initial drop in credit score, followed by an increase as consistent payments are made and debt is paid off.

Debt Settlement

Debt settlement will have a negative impact on your credit score because you stop paying your creditors.

Bankruptcy

Bankruptcy remains are your credit report for 10 years and makes it difficult to get future credit.

 

 

Based on their features, a DMP typically provides a safe way out of debt. Unlike DMPs, debt settlement companies often make people’s debt situation worse. Bankruptcy could be an option for some people that do not have enough money to make monthly payments, but it is not ideal as it requires formal court proceedings that can have long-term consequences.