Debt management plans are meant to deal with a few, simple, small, unsecured debts. While a debt management plan can help if you have a few small credit card debts, a small bank loan or some unpaid bills, DMPs cannot settle complex debts including tax debts and student loans.

What exactly is a Debt Management Plan?

A debt management plan is a service or programme offered by a credit counselling firm to help people pay off their debts. It’s a strategy for paying off your obligations in full over a five-year period.

A non-profit credit counselling agency “pools” your unsecured obligations in a debt management plan so that you just have to make one monthly payment. After that, the agency divides your payment among your creditors, with the larger creditors receiving a larger share of the payment.

What can a Debt Management Plan help you with?

Debt management programmes are for people who can afford to pay off all of their debts in full but don’t qualify for a debt consolidation loan and would benefit from a set payment schedule.

Benefits of a Debt Management Strategy:

  • Put an end to the collection calls.
  • A single monthly payment
  • Reduced or no interest costs
  • It is a voluntary method where you choose to begin the process.

Disadvantages of a Debt Management Plan

For everyone, a debt management plan is not the best way to get out of debt. Here are a few reasons why you may want to look into other debt reduction options.

  • You must settle all of your debts in full.
  • Creditors are not legally bound by a debt management plan.
  • It is unable to handle all debts.
  • Your credit report will include a remark.

A debt management plan will not help you get out of debt. You must pay off all of your debts in full. If you need to get out of debt, a consumer proposal is a good option.

Effect of a Debt Management Plan on your Credit Score

An R7 note that you have gone into a debt payback programme will appear on your record for 2 to 3 years from the date the programme was satisfied or six years after you defaulted on the loan, whichever comes first, when you file a debt management plan.

Many consumers are startled to learn that a debt management plan affects their credit report in the same way that a consumer proposal does. A consumer proposal, on the other hand, offers one significant advantage over a DMP: your monthly payments will be far cheaper. This means that if you file a consumer proposal, you will be able to recover sooner because you will be able to save more money.

Get Help

In most cases, your payments will be much lower under a consumer proposal than they would be under a debt management plan.

We recommend speaking with one of our consultants about a free, no-obligation debt assessment to help you identify which plan is right for you. Contact us at [email protected] to know more.

Disclaimer: is a debt consultancy service, we are not an authorized blogsite and are only advisors providing you with the tools and information to help you get out of debt.