When people ask me about a Debt Management Plan (DMP), they are usually looking for a magic wand that will erase all of their debt woes. Needless to say, there is no magic wand to improve your financial situation or poor credit rating. Improving these takes work, personal dedication and time.

The DMP is a program of debt consolidation that allows you to make one payment each month on a date you choose. This payment is then distributed to your creditors for you. This allows you to more effectively manage the cash flow of your household and helps to establish a consistent, on time payment pattern to creditors.

The Debt Management Plan is not for everyone, but it can be a valuable program for people in certain situations. The DMP is designed to help people who are falling behind in payments, getting late or over-the-limit fees and receiving collection calls and who have the means to make a monthly payment towards their personal debt. If you are one of these people, you should consider getting help to evaluate if a DMP is right for you before your financial circumstances snowball out of control.

Some of the benefits offered by creditors to those persons who enroll on a DMP may include:

• reduced interest rates on credit cards
• reduction or elimination of late and over-the-limit fees
• helping to stop collection calls.
• helping to avoid requiring payment of the full balance upfront for accounts that are in collections and additional costs like attorney and court fees.

Persons on a DMP are able to repay their debts at an accelerated rate, usually in five years or less. The rate of repayment depends on benefits, such as lower interest rates, that may be extended by each individual creditor. The accelerated repayment is possible with lowered interest rates because more money goes towards the principal (the balance owed without fees or interest charges) of the debt each month. Also, by maintaining the same monthly payment amount, once the first creditor is paid off, that payment is distributed among the remaining creditors which increases the payment to them and, in turn, makes pay-off faster.

Creditors may notify the credit reporting agencies of your participation in a DMP which could initially have a negative impact on your credit rating. In addition, all of your revolving accounts will be closed and new unsecured debt should not be established. Most people who may benefit from a DMP are behind in payments, getting late fees and collection calls and have credit problems already. Making on time consistent payments through the DMP can result in gaining control of your financial situation and can result in an improved credit rating over time.

If you are considering a Debt Management Plan, please visit our website at http://www.myfinancialgoals.org/ . Our site has several tools, budget aids, on-line education and information to help you to evaluate if a DMP may be a good option for you.