Two common questions consumers have when considering a debt management program are:
- Can I cancel my debt management plan?
- Can I remove an account from the debt management program?
The short answer to both is yes.
The longer — and more realistic — answer is yes, but there are consequences for both of these actions.
Canceling the Debt Management Plan: How, Why and Consequences
A debt management plan combines your available financial resources with concessions from your creditors and calculates an affordable monthly payment that will eliminate your debt.
The plan is a voluntary agreement. You can cancel anytime, for any reason. At InCharge Debt Solutions, you can cancel the debt management program with a phone call, email, fax or letter.
Reasons DMPs are Canceled
You may consider cancellation if your financial circumstances change dramatically. You may walk into an unexpected windfall of cash through an inheritance or job promotion and feel like you can pay off the debt quickly. On the other hand, you might lose your job or face a huge bill for a home or car repair and decide you just can’t handle the monthly payment for the debt management program anymore.
Either way, you can cancel your debt management plan. A credit counselor may contact you to verify that this is in your best interests, but it is not hard to get out of the agreement.
Consequences of Canceling Your Debt Management Plan
The problem with canceling a debt management plan before you’re finished is that it creates (or recreates) the problems that got you in trouble. You still have credit card debt; you still need debt relief, and you likely will lose the concessions from creditors that gave you a chance to be debt-free.
A debt management plan is built around those concessions. Creditors offer reduced interest rates and sometimes waive late fees and over-the-limit fees on your credit cards so that you have lower monthly payments. Those concessions go away as soon as you drop out.
In other words, the interest rate on your debt returns to its previous level, late fees are re-instituted, and your monthly payment increases. You are right back where you started.
What Happens If I Stop Paying My Debt Management Plan?
If you stop making monthly payments to your debt management plan, you will be removed from the program and your rates will shoot back up to their previous levels. Some plans will drop you after missing a single payment, while others may be generous enough to allow up to three missed payments. Since the purpose of a debt management plan is to eliminate a consumer’s debt – and teach the consumer the benefits of on-time payments – it will only work if you’re making consistent monthly payments.
Here are a few things that happen when you stop paying your debt management plan:
- Interests rates on credit cards jump back to previous levels
- Late fees that were waived may be reinstated
- Credit card payments are no longer consolidated into one payment
- You must make individual payments to each account
- Creditors and collection agencies may start calling you again
If you don’t think you’ll be able to make your monthly payments, call your counselor and ask about any other options available to you.
Things to Consider Before Canceling Your DMP
You can cancel a debt management plan, but you can’t cancel debt, not as easily anyway.
If you decide to part ways with your debt management plan, you still need a plan to deal with your debt. You need to figure out how you will be managing your money, and you need to figure this out before you pull the trigger on canceling your debt management plan.
Three to five years is a long time to live with restrictions on your spending, but it beats bankruptcy and tends to be a lot cheaper than debt settlement.
There are valid reasons consumers may want to cancel their debt management plans. Maybe you’ve been promoted and can afford to repay your debts in full, or maybe you can’t afford the DMP fee. Whatever your reason for canceling, you should think long and hard about what you plan to do next.
Here are some things to consider before canceling your DMP:
- What will you do about dealing with your debt?
- Is there a cancelation fee?
- Will you have to pay late penalties? How much?
If you’re struggling to keep up with payments, ask your counselor if he or she can lower fees or waive them altogether.
Can I Remove an Account from My Debt Management Plan?
Yes, you can remove individual accounts from your debt management plan. To do so, call customer support and make the request.
The consequences for removing a credit card account from a debt management program are similar to those of canceling a program, though possibly not as severe.
Credit counselors encourage you to put all your credit card accounts into the program. Credit cards are usually the source of trouble for people in debt management programs, and the time spent in a program is a chance to wean off of them.
Still, some people don’t think they can live without their favorite credit card and don’t want it included in the program. That is a problem. Creditors require you to close all credit card accounts when joining a debt management program. If they check your credit report and see that you have kept one for your own use, they may cancel you from the program.
As for removing a credit card when you are already in a debt management program, that too can be done, but again, there will be consequences. You will not be able to use the card until the debt has been settled, and it’s likely the card company will increase the interest rate you pay on the card.
Can You Re-Open an Account That Was Removed?
Yes, but it depends largely on your creditors. No law or rule says you can’t re-open accounts that have been removed. As long as you’ve stayed current with your other accounts, the agency can ask your creditor to add an account that’s been removed. However, there is no guarantee that they will agree.
Alternatives to a Debt Management Program
Some of the choices you have for a fresh start financially include debt settlement, debt consolidation, and if the situation has reached extreme conditions, bankruptcy. Each of these programs has positive and negative aspects, particularly regarding the impact on your credit score.
Debt settlement and bankruptcy will cause serious damage to your credit score. This can make it difficult to qualify for home and auto loans after you settle your debts. Make sure you researched the positives and negatives attached to these choices before diving in.