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How to Cancel a Debt Management Program & Remove An Account
Canceling a debt management program or removing an account can affect your repayment progress, creditor benefits and overall plan. Before making changes, contact your credit counseling agency to review the consequences and decide the best way to move forward.
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.
Frequently Asked Questions
Yes. A debt management program is voluntary, so you can cancel if your financial situation changes or you decide another option is better. Before canceling, ask your credit counseling agency what happens next, including whether creditor concessions may end, payments may increase or accounts may return to their original terms. A counselor may be able to review adjustments before you leave the plan.
If you cancel your debt management plan, creditor concessions may end. That means reduced interest rates, waived fees or other benefits may no longer apply. You may also need to resume making separate payments directly to each creditor. Canceling does not erase the debt, so it is important to have another repayment plan in place before ending the program.
If you stop making payments, your plan may become delinquent or be canceled depending on the agency’s and creditors’ rules. Creditors may end reduced-interest terms, reinstate fees, require direct payments or resume collection activity. If you cannot afford the payment, contact your counselor before missing it to ask whether the plan can be adjusted.
You may be able to remove one account from a debt management program, but there may be consequences. The creditor may end reduced-interest terms, raise the rate on that account, reinstate fees or require direct payment. Removing an account can also affect the overall plan, so ask your counselor what will happen before making changes.
It may be possible to add an account back, but approval is not guaranteed. The credit counseling agency may need to ask the creditor to accept the account again. The creditor may agree, decline or offer different terms than before. If you are thinking about removing an account temporarily, ask first whether it can be re-added later.
Canceling a debt management plan does not automatically damage your credit by itself. However, your credit may be affected if payments are missed, accounts become delinquent, balances grow or creditor concessions end. Accounts enrolled in a debt management plan may also have been closed, which can affect credit utilization. Keeping payments current after cancellation is important.
Alternatives may include reviewing your budget, asking creditors about hardship options, debt consolidation, debt settlement or bankruptcy. Each option has different costs, risks and credit effects. Debt settlement and bankruptcy can have serious credit, legal or tax consequences, so they should be reviewed carefully. A nonprofit credit counselor can help compare options before you decide.
