The agency should be organized, send payments and statements on time and offer strong consumer education and support. The payment is usually around 2.5 percent of the total debt, though in hardship situations, there is some wiggle room. Why consolidate bills if you can't pay for basic expenses or if there are better alternatives?
You can stop the plan at any time, and you can also pay more -- and get out of debt faster -- when you have extra funds. You wouldn't, which is the reason consolidation begins with a counseling appointment where your entire financial situation is assessed.
On the other hand, most people who go into a DMP do so because they're already stumbling and missing payments, so making timely and consistent payments through the service can help their reports.
Clearly, consolidating debts through a debt management plan with credit counseling agency can be helpful, but you may also be able to achieve the same results on your own. Suspend charging and request rate reductions from each of your creditors.
Also, while a DMP is not factored into a credit score, some creditors note that you're paying through a third party, which can be a red flag to a lender or anyone else looking at the report. It shows that they need help paying their bills," says Stuart Davis, a senior loan consultant for Princeton Capital out of Los Gatos, California.
According to their underwriters, the plan needs to be complete before they will make a loan.
With a DMP, you're paying 100 percent of your obligations, which is quite different from discharging them in a bankruptcy or settling the debt.
Still, your credit report can take a hit if your monthly payments are less than what you would normally pay.
And third, you need to have just enough money for essential expenses, some savings and your debt. While you're on the plan, your payment remains constant.
If you have too much cash left over, you're better off managing the accounts on your own. You never have to wonder how much you should be paying each month, as it will be the same amount until all creditors are satisfied.
Focusing on getting out of debt with the right tools comes first.