What is a Debt Management Program (DMP) and Will It Work for Me?
If you’re struggling to manage several credit cards with different due dates, a Debt Management Program (DMP) may be an ideal solution to help you stay organized and out of the red.
But what is a Debt Management Program and how does it work? A DMP is a voluntary arrangement between you, your creditors, and the Credit Counselling Society that helps you get out of debt.
In a Debt Management Program – also called a debt repayment program – all of your unsecured debt payments, e.g. for debts like credit cards, payday loans, overdrafts, personal loans, or lines of credit, are combined into a single payment so you can focus on paying off what you owe. Your creditors support the program by waiving or reducing ongoing interest charges.
Debt Management Program highlights:
- It’s a voluntary arrangement and will not be reported as a legal matter on your credit report
- It combines all of your unsecured debt payments into a single monthly payment
- With our help, your creditors will typically reduce or completely eliminate the interest rate on your debts going forward so that you can be debt free within 5 years
- We provide ongoing support, and should something unexpected happen while you’re repaying your debts through a DMP, we’ll help you determine you best next step
- It will impact your credit positively or negatively, depending on your individual situation. We can help you rebuild your credit rating afterwards if that’s what you need.
- About 90 per cent of our DMP clients successfully make their payments every month
How are Debt Management Programs Set Up?
It starts with you and one of our Credit Counsellors reviewing your whole situation confidentially. This includes, what caused you to get into debt, what types of debts you have, how much income you have and what your expenses are, and what your budget looks like. If you and your Credit Counsellor determine that a DMP is the best solution to fit your individual needs, we’ll manage the paperwork to get the program started.
When the paperwork is drawn up, CCS sends proposals to your creditors on your behalf, asking them to accept a prorated payment amount for up to five years. This gives you a realistic amount of time to repay your debts without the process taking too long and having debt fatigue set in.
How Do Creditors Feel About a DMP?
Because we have longstanding relationships and national agreements with most creditors, they tend to respond quickly and positively to our DMP proposals. If a creditor has concerns or questions, we work with them to get them on board so that you’re off to a good start. Once creditors give us the green light, you stop making individual payments to each of them involved in the DMP – instead, you’ll start making one single lump sum payment to us each month. We take that single payment and disburse the amount to all of your creditors.
If you’re receiving collection calls from your creditors, these will stop when you start the DMP.
Our fees are minimal; we charge a set-up fee of $50 to a maximum of $75, depending on which province you live in and how much debt you have, and then a small, monthly fee of 10 per cent of the monthly deposit amount, to a maximum of $75 (whichever is less).
What Are the Chances You’ll Successfully Complete a DMP?
About 20 per cent – or one in five – Canadians who come to us for help have situations where they choose to establish a DMP. It’s not the right debt consolidation option for everyone and we’ll tell you that up front.
It works and it is a sustainable solution: nearly 90 per cent of our clients with a DMP successfully make their payments every month. And only 0.1 per cent of people who successfully complete the program come back in search of financial help again – an incredibly promising sign that the program not only eliminates debt but teaches you the skills you need to manage money successfully on your own in the future.
What Happens After Your Debt Management Program is Paid Off?
When you’ve completed your Debt Management Program and have paid off your debts, we take care of finalizing things with your creditors, and reporting to the credit bureaus – Equifax Canada and TransUnion Canada, that you’ve paid off your debts through a DMP.
Two years after you successfully complete the program, or 6 years from the start (whichever is sooner) the debts repaid through the DMP are removed from your credit report – we ensure this happens, too.
We Want Our Clients to Be Able to Re-Establish Their Credit Rating
If you need help re-establishing your credit rating, we can assist with this. Our Credit Counsellors can help you get an unsecured credit card to rebuild your credit rating; and if needed we can give your bank or credit union a letter explaining the program and your success.
One of the Secrets of Success is Your Partnership with Your Credit Counsellor
Throughout the process, you’re paired with a Credit Counsellor who will not only help you stay on track with your DMP, but will teach you long-lasting money management skills.
While the primary goal of a Debt Management Program is to streamline debts and tackle them as a single payment, your Credit Counsellor will also work with you to develop a realistic budget (which is crucial to successfully completing a DMP), set short- and long-term savings goals, and help you understand what your triggers are with spending.
What’s the Next Step If I Need Help with My Debts?
Contact us to speak with a Credit Counsellor and to review your financial situation. If a DMP is right for you, the Counsellor will explain all of the details so that you can make an informed decision. No pressure, just advice and guidance to help you get the debt relief you need and want. And don’t worry, if a DMP isn’t right for you, the Counsellor will have other suggestions about options to consider. Either way, we won’t leave you wondering what to do or where to turn next. Give us a call or chat with us online; you’ll feel better knowing what to do about your debt.