Debt Management Program Eligibility & Requirements

Making your credit card payments should feel like progress. But when interest takes a big bite out of every payment and the balances barely budge, it can feel like you’re running on a treadmill.

A debt management plan (DMP) gives those payments more structure. Instead of juggling several due dates, you make one monthly payment to a nonprofit credit counseling agency, which sends the money to participating creditors. Those creditors lower interest rates and in return, you’re able to make real progress toward paying down those balances.

There are a few catches. A DMP isn’t a loan, and not every person, creditor or debt will fit. A free counseling session can help determine whether a DMP is the best solution for you or if another option may better fit your financial situation.

What Is a Debt Management Plan?

At its simplest, a debt management plan organizes several eligible debts into one monthly payment. You send that payment to a credit counseling agency, and the agency sends each participating creditor its share.

A debt management program doesn’t move your balances to a new lender, and InCharge does not lend money. The savings come directly from the creditors, not a new loan. Participating creditors may lower interest, waive certain fees or reduce the monthly amount due. With an InCharge DMP, rates may be reduced to about 8%, and repayment typically takes two to four years.

Another benefit of a DMP is that they are flexible. Some eligible accounts may qualify for InCharge’s Less Than Full Balance option, and one plan can sometimes include both approaches.

How Does a Debt Management Plan Work?

A DMP starts with a conversation, not enrollment. Here’s what usually happens:

1. Start a credit counseling session: A counselor reviews your income, expenses, assets and debts. The goal is to understand what your budget can realistically handle.
2. See what fits: If a DMP looks workable, the agency puts together a monthly payment based on your budget and eligible accounts.
3. Get creditor approval: Each creditor decides whether to accept the proposal, lower the interest or waive certain fees. Don’t count on new terms until the creditor accepts them.
4. Make one payment: You pay the agency once a month, and the agency sends the money to participating creditors. Keeping that payment on track is what keeps the plan moving.

How Traditional, LTFB and Blended DMPs Differ

Here’s where DMPs can get confusing: Not every account has to take the same route.

With a traditional DMP account, you repay the full principal. InCharge also offers a Less Than Full Balance (LTFB) program, sometimes referred to as a credit card debt forgiveness program. Some severely delinquent or charged-off accounts may qualify to be repaid for 40-50% of the balance. The current creditor or debt owner must participate, so a counseling session is necessary to determine if the program is available.

A blended DMP brings both approaches into one plan. Traditional accounts are repaid in full, while approved LTFB accounts are repaid for less than the full balance. You still make one combined monthly payment. Behind the scenes, the agency divides it according to the terms approved for each account.

How traditional, LTFB and blended DMPs compare

Who Qualifies for a DMP?

There is no single box you can check to know you qualify. A steady income helps only if your budget has room for the plan payment. You also need the right kinds of accounts, and the creditors that hold them must be willing to participate.

A counselor will look at the whole picture: What comes in, what has to go out, what you own, how much you owe and where each account stands. That review is what shows whether the payment is realistic.

Your credit score isn’t the deciding factor, and InCharge doesn’t have a minimum score requirement for a DMP. Still, no minimum score doesn’t mean automatic acceptance. The budget, accounts and creditors all have to line up.

A Quick DMP Self-Check

Could a DMP be worth exploring? These are good signs:

1. Room in the budget: After essential expenses, you may be able to make one consistent plan payment.
2. The right kinds of debt: Much of what you owe is on credit cards or other unsecured accounts that may qualify.
3. Participating creditors: The creditors or current debt owners are willing to work with the program.
4. Ready for a routine: You can make the payment each month and avoid new credit unless the agency approves it.

Which Debts May Qualify?

Credit cards are the most common fit, but they are not the only possibility. InCharge DMPs mainly cover unsecured debts, meaning debts that are not backed by property such as a home or car. Debts that may qualify include:

1. Credit cards
2. Some unsecured personal or consolidation loans

Mortgages and auto loans are not included. Federal student loans have separate federal repayment or relief options. Even when a debt appears on the list above, the creditor, current owner and account status can affect whether it’s accepted.

What Does a DMP Cost?

Here are the numbers most people want before they pick up the phone. Credit counseling with InCharge is free. If you enroll in a DMP, here are the fee averages:

• Setup fee: An average one-time fee of $52.
• Monthly fee: An average service fee of $34.
• State variation: The amount you would pay depends on the state regulations in your state.

These are averages, and your counselor can explain the exact debt management program fees before you enroll.

The fees are separate from the interest your creditors charge. InCharge describes the reduced rate on participating DMP accounts as about 8%, but each creditor and account can be different. A lower rate will help more of your payment reach the balance.

How Does a DMP Affect Your Credit?

A DMP does not directly affect your credit. Talking with a credit counselor and having a DMP notation don’t, by themselves, change your credit score. What happens around the plan can affect your score, though.

• Closing cards: Enrolled credit lines may be closed, which can change how much of your available credit you are using.
• Lowering balances: The amount you owe is part of credit scoring, so balance changes can matter.
• Paying on time: On-time and late payments can affect your credit history while you are on the plan.
• Using new credit: You may be expected to avoid opening or using new credit unless the agency approves it.

Your score could move up or down at different points. That’s why a DMP is better judged by a more practical question: Does it give you an affordable, realistic way to handle the debt? No one can promise what it will do to your score.

Is a DMP Right for You?

It could be. A DMP often makes the most sense when credit cards or other eligible unsecured debts are the main problem, minimum payments are getting you nowhere and your budget can handle one steady payment.

A DMP also asks something of you. You need to make the payment every month, and enrolled credit lines may need to be closed. If that tradeoff gives you a clear plan and a realistic finish line, it may be worth considering.

Sometimes the answer is no, and that’s useful to know too. A DMP may not fit if most of your debt is a mortgage, auto loan or federal student loan, or if the monthly payment is not affordable.

Other options such as debt settlement seek creditor approval to resolve debt for less than owed, but it can bring added collection, lawsuit, credit and tax risks. Bankruptcy is a legal process, so a qualified bankruptcy attorney should explain whether it applies to your situation.

You don’t have to figure out the right category on your own. Free credit counseling lets you walk through your budget and options without committing to a program.

InCharge has provided nonprofit credit counseling and financial education since 1997. It is a 501(c)(3) nonprofit, an NFCC member, COA-accredited and HUD-approved organization.

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