Definition
A debt management program is a service that facilitates the repayment of consumer debt through tailored plans created for individuals in financial turmoil.
Analysis
A debt management program may be maintained by a nonprofit credit counseling agency or by a for-profit debt management company. The qualify of the payment processing may be comparable at nonprofit and for-profit agencies alike.
However, debt management companies lack the educational focus that is required of nonprofit credit counseling organizations. A debt management program should include substantial counseling and educational programming in addition to maintaining a debt repayment system.
A consumer that wishes to enroll in a debt management program is counseled to evaluate the nature of their financial problems and the extent that they may be able to repay their debt using various techniques. If it is determined that they need to enroll, then a debt management plan (DMP) is tailored to fit their needs as well as the requirements of their specific creditors.
A debt management program may help a debtor satisfy their obligations and rebuild their credit rating over a period of 3 to 5 years. Their DMP may allow for lower interest, a lower consolidated payment, the waiver of certain fees and an automatic payment feature to assist with repayment. Benefits are subject to creditor approval, and risky consumer behavior can jeopardize their qualification for benefits.
Some industry outsiders incorrectly label a debt management program as being similar to a Chapter 13 bankruptcy. There are many distinct differences. A consumer who repays their debt through a debt management program is not penalized by credit bureaus for repaying through the program. Their credit scores will change, gradually improving as their individual debt balances are repaid. A Chapter 13 bankruptcy, however may not repay all of the debt and will show as a negative public record on their credit reports for a period of 10 years.
