Your Debt Consolidation Options
There are a lot of options when it comes to managing debt. If you’re trying to figure out what’s best for your situation, you may be considering two popular options—a Debt Management Plan (DMP) or a Debt Consolidation Loan. They may appear to be the same, but they are actually very different.
We’ll explain the differences in detail below and you can also check out this helpful infographic that describes each one.
Option 1: Debt Management Plan
A Debt Management Plan is a program designed to help pay off unsecured debts with the help of a non-profit credit counseling agency. Examples of unsecured debts covered in a DMP include:
Payday loans and secured debts such as car or mortgage payments cannot be included in a DMP. On a DMP, all enrolled unsecured debts are consolidated into one monthly payment made to the credit counseling agency who then pays each of your creditors on your behalf.
Benefits of a DMP
Enrolling in a DMP with a trusted, non-profit credit counseling agency can help you regain control of your finances without incurring more debt. The benefits of a DMP may include:
Frequently Asked DMP Questions
How does a DMP work?
With CESI, you’ll start with a free debt analysis to determine if a Debt Management Plan is right for you. If you enroll in a DMP, you’ll make one affordable monthly payment to us and we pay all of the creditors you’ve enrolled. In many cases, creditors provide benefits such as reduced interest rates, lower monthly payments, and eliminating certain fees.
How much does a DMP cost?
CESI offers budget and credit counseling with a Certified Financial Counselor free of charge. During your online or telephone session, we’ll identify the root cause of your debt, review your income and expenses, and make a debt relief recommendation. If you qualify, one recommendation may be to join CESI’s Debt Management Plan.
If you decide to participate in our debt management program, there is an average one time set-up fee of $37, and an average monthly fee of $25. Regulations on fees vary according to the state you reside in, but fee do not exceed $75. Please contact us for the fees in your state.
Your monthly fee may be less than the standard fee, depending on your financial situation. CESI credit counselors may reduce or eliminate these fees depending on your ability to pay.
Will this affect my credit?
The purpose of a DMP is to help you pay your outstanding debts. We cannot make any representation about any aspect of your credit record, credit score, credit history or credit rating. Creditors decide whether or not they will report your participation in the DMP to the credit bureaus.
Is this a loan?
A DMP is not a loan (please see more below on a Debt Consolidation Loan). A DMP may help you repay your debt in full while saving money on interest and late fees. Our free debt analysis tool provides an estimate of what you could save on this program vs. paying debt off on your own.
Is this debt settlement?
This is not debt settlement. This program will help you repay your full principal balance due to your creditors. It may help you get out of debt faster and for a lesser amount through lower interest rates.
If you still have questions, please call us to speak with a certified counselor at (866) 484-5373 or you can visit our Frequently Asked Questions page.
Is a Debt Management Plan Right for Me?
If you’re considering a DMP to consolidate debt, the first step is to complete a free online debt analysis. In just a few minutes, you’ll be provided with an estimated plan based on the information you entered. Your estimated plan will show you what a DMP may be able to do for you, and will look like this:
You’ll then speak with a certified credit counselor who will confirm your information and debt savings estimate. If you determine that a DMP is the right choice for your situation, your counselor will walk you through enrolling in the program.
A DMP Success Story
We had the pleasure of assisting Andrea with paying off approximately $10,000 in credit card debt while enrolled in a DMP. She happily shared with us that her credit score is now in the 750 range and she plans to buy her first house with her savings! We couldn’t be happier for her. You can read her story here.
At CESI, we’re in it for the long haul supporting you each step of the way with regular communications and resources along your journey to debt freedom. Ready to get started? Speak with a friendly, certified counselor now: (866) 484-5373.
Option 2: Debt Consolidation Loans
Debt Consolidation Loans are typically offered by banks, credit card companies, and other financial institutions. Since it’s a loan, you’re replacing multiple accrued debts with one single loan. The interest rates vary, and in order for it to be a more manageable monthly payment, the repayment period could be longer.
When applying for a Debt Consolidation Loan, lenders consider the following criteria:
Based on this information, your lender will determine if you are approved for a loan, your interest rate, and the length of your repayment term. It may be difficult to qualify for a debt consolidation loan if you are already struggling with debt.
It’s important to note that taking on a Debt Consolidation Loan comes with some risks. For example, if you are required to use your property as equity and fail to make payments, you could lose your home. It also does not prevent you from taking on more debt so you should proceed cautiously.
Reading the Fine Print
Not all debt consolidation companies are created equal so you should do your research. It’s recommended that you work with a reputable, non-profit credit counseling agency that is a member of the National Foundation for Credit Counseling® (NFCC®).
When it comes to your debt consolidation terms, read the fine print. For instance, although a consolidation loan may offer lower interest and lower monthly payments, you could end up paying more in the long run because of the extended life of the loan. In the meantime, don’t continue to use other credit cards that will only dig you deeper into debt.
The Bottom Line
As you can see, there’s a lot to consider and your options will vary based on your unique financial situation. Talking to a certified credit counselor will help you make sense of all the options available to you. Credit counseling agencies were created to help consumers—whether it’s creating a new budget or explaining the pros and cons of different debt relief options. The counseling is confidential and there’s never any obligation. Take the first step today with a free debt analysis to get the answers to your debt relief questions.
† The interest rate used is an example of the average interest that our prospects and clients experience. Your rate and terms may vary.
¥ The estimated length of time to complete repayment is a good faith estimate based, in part, on the average of a recent sampling of annual interest rates charged by creditors that participate in our debt management program. Accordingly, your actual length of time to complete repayment may vary.
CESI provides a range of services from non profit credit counseling to debt consolidation options to our financial education curriculum
figure out which solution works best for your circumstances
Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY