There are many things to consider when making the switch from a Debt Management Plan to a Debt Settlement Plan, as they are two completely different approaches to paying off your debt.

A Debt Management Plan is a structured repayment program which involves making a payment to a Credit Counseling Agency, who then distributes the payments to the creditors. The creditors generally offer some type of benefit to customers who enroll in a DMP including lower interest rates and waiving late or over the limit fees. A DMP  usually lasts for three to five years depending on the amount of debt the customer enrolls with and the amount of the monthly payment.  

One of the keys to a DMP is making the same payment amount each month, even when your accounts begin to become paid in full. As you pay an account off, the money that was sent to that creditor gets sent to another creditor allowing more money to be allocated to that creditor's balance.

It is important to understand in order to keep your benefits you need to make your payment on time every month. If you find yourself rescheduling often, or missing payments, understand creditors may stop offering benefits and you may want to consider your other options; such as a Debt Settlement Plan.  

A Debt Settlement Plan is an alternative for those who are unable to afford payments to their creditors, either on their own, or through a Debt Management Plan.  

Debt Settlement works on the proven theory that creditors usually accept a lesser amount after they have not received any payments for a significant amount of time. If someone owed you $1,000 and they had not sent you a payment in six months, but showed up on your doorstep offering $500 in cash, would you take it instead of the balance owed? I know I would.  

Before making the leap there are a few things you need to understand about enrolling in a DSP. 

  • Collection calls. Creditors are no longer receiving monthly payments; it is logical they would contact you regarding payment. We ask that you follow our guidelines for handling collection calls.
  • You may be sued by your creditors. While being sued may seem counterproductive it is a step towards settling the account. Don't worry we are there to help along the way.
  • Accounts  take time to settle. Settlements will not happen overnight as your accounts need to be delinquent to settle. Patience and perseverance are the key to being successful.
  • You just want a lower payment. If you are considering a DSP as a Debt Relief option because you want a lower payment you should NOT switch from a DMP to a DSP as it may make your situation worse. Instead try making adjustments to your budget to afford the DMP.  

Please understand that switching plans should be carefully considered. If you are experiencing any of the below issues you may want to consider a DSP as Debt Relief option. 

  • You are missing payments on your current DMP.  You have missed several payments and find yourself frequently changing your DMP payment date.
  • A DMP does not fit your budget.  No matter how hard you try you can not cut your budget enough to afford the DMP payment and will not be able to make consistent on-time monthly payments.
  • You don't want to file for Bankruptcy.  You want to avoid bankruptcy and the long-term impact it can have on your credit
  • Settlement isn't easy, but you understand all the risks and ramifications. Settlement is not an easy process and you need to be prepared to persevere through creditor calls while you wait for your escrow to build so a settlement can be proposed.
  • You are willing to be patient. Settlement will take time and patience to work and you fully understand this and are onboard with the process. 

For personalized information tailored to your situation please contact one of our Certified Credit counselors who can help walk you through your budget, assess your debt situation, and help you make the best decision for you! 

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Rob Taylor

Rob is a contributing writer for the Straight Talk on Debt blog. Rob has been in the business of helping people get out of debt for the past six years. He is a product manager with the CareOne team and focuses on making debt relief plans even better.