My wife, Vonnie, and I are on a journey to pay off 109K in credit card debt through the help of a Debt Management Program. We started our journey in July of 2009, and are expected to be rid of this behemoth mountain of debt in March of 2014.
Some of you may be wondering, what exactly is a debt management program (DMP)? There is a lot of misinformation about the debt relief industry floating around, so I felt it this would be a great forum to explain what a DMP is, and how it is helping my family get back on it’s feet financially.
Program In a Nutshell
Our enrollment process began by providing a list of unsecured lines of credit that we wish to enroll in the program. Our debt relief provider then sent to those creditors a proposal which had the following information:
- Notification of our enrollment in a debt management program
- Proposal of a reduced interest rate
- Proposal of a monthly payment that together with the reduced interest rate will result in the debt being paid in full within 3-5 years.
In exchange for a fixed payment and lowered interest rate, the creditor closes the account, and expects consistent monthly payments. Some even state in their acceptance response letter that they expect you to not open any new lines of credit while enrolled in a debt management program and will periodically evaluate your credit report to ensure that is the case. Each month we make one payment to our debt relief provider (including a monthly service fee to them), and they disperse the appropriate payments to our creditors.
Violation of the agreements may result in creditors dropping us from the program and re-instating the original terms of the account – ie, insane interest rates and larger minimum monthly payments.
The Waiting Game
The first few months of being enrolled in a DMP were the most stressful in regards to the program itself as we waited for proposals to be acted upon, calling creditors daily to try to get any new status, and nudging them to respond. Some creditors responded within days, some within a few weeks, one took almost 3 months.
The proposals are not always accepted. In our case, we had two that were rejected.
Creditor #1: Wanted a slightly higher payment each month. A second proposal was sent with the requested monthly payment and was accepted.
Creditor #2: Our balance was part of a promotional interest rate program. We had to call the creditor and formally request to end the promotional program. Once we did this, the proposal was resubmitted and accepted.
While this was very stressful at the time, I learned over time while talking with and reading about others beginning their program that this was just part of the process.
Who Should Consider a DMP?
Our DMP has been a financial lifesaver for our family, but it isn’t for everyone. DMPs are well suited for people that are current with their accounts, but are in danger of falling behind and just aren’t making significant progress on paying down their debt. In a lot of cases (such as ours), enrolling in a DMP will not reduce your monthly payment, but will increase the amount you are paying on your balances due to the reduction in interest rates. That doesn’t mean, however, that if you’re behind on your bills that a DMP won’t work for you, as sometimes the reduction in interest may make the payment manageable. Every situation has to be evaluated on a case by case basis.
Couldn’t We Have Done This On Our Own?
Many people do just that. They cut their expenses, raise their income, or both and attack their debt one account at a time. It takes discipline and self motivation, and a lot of it. We tried many, many times to do it ourselves, but just couldn’t do it. I like to think of my debt relief provider as my “financial personal trainer.” The bill I pay to them each month provides the structure I need to make consistent headway towards eliminating my debt, and they provide the tools I need to make new financial habits stick – such as budgeting tools, money saving tips, and constant motivation through their online community.
Where Are We Now?
When Vonnie and I make our 38th payment to our DMP this month, we will have eliminated nearly $70K of our debt. It is estimated that we have 19 payments remaining until all of our debt enrolled in the program is paid in full.
My purpose for writing this article is not to try to convince everyone in debt to rush out and enroll in a DMP. As I mentioned, a DMP is not the right choice for everyone, although it was the right choice for me.
The point is that if you’re in debt and trying to find a way out, you have options. A debt management program is simply one of those options. Having options can build hope, and when you’re staring at a stack of bills wondering if it’s ever going to get any better, a little hope can mean everything.