Debt Management Program
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This is a debt repayment option that allows you to pay back 100% of your debts over a span of one to five years through a credit counselling agency. With this program, all of your unsecured debts will be consolidated so that you only have to make one monthly payment. The agency will negotiate with your creditors to reduce the interest the rates to as low as 0%, therefore making repayment possible within a shorter time-frame.
This type of program can be referred to as a Debt Management Program (DMP), Debt Consolidation Program (DCP), Debt Management Plan or Credit Counselling.
This type of program can be referred to as a Debt Management Program (DMP), Debt Consolidation Program (DCP), Debt Management Plan or Credit Counselling.
How it works
You would start by booking a free appointment to speak with a Credit Counsellor, preferably from a registered non-profit credit counselling agency. During the appointment, the Credit Counsellor will calculate a monthly payment amount that he/she feels will be acceptable to repay all of the creditors, based on your income, expenses and debts. Once you agree to this payment and choose to start a debt management program, your Credit Counsellor will contact each of your creditors to negotiate the lower monthly payments and interest rates on each specific debt.
In most cases, your creditors will agree to a 0% interest rate. For the few creditors who do not stop the interest charges completely, the interest rate (APR) will likely be significantly reduced. You will then make one payment to the Credit Counselling agency every month until your debts are paid in full. The debts can be paid off early at any time without any penalties.
Most non-profit credit counselling agencies will charge a monthly fee to administer this program. This fee is necessary to cover the agency’s administration expenses, and will typically end up being significantly lower than if you were paying interest on the balance of your debts. The fee is usually included with your monthly payment.
In most cases, your creditors will agree to a 0% interest rate. For the few creditors who do not stop the interest charges completely, the interest rate (APR) will likely be significantly reduced. You will then make one payment to the Credit Counselling agency every month until your debts are paid in full. The debts can be paid off early at any time without any penalties.
Most non-profit credit counselling agencies will charge a monthly fee to administer this program. This fee is necessary to cover the agency’s administration expenses, and will typically end up being significantly lower than if you were paying interest on the balance of your debts. The fee is usually included with your monthly payment.
How will it affect my assets?
A debt management program cannot help you with any of your secured debts, such as a car loan or mortgage, as only unsecured debts can be included on the program (credit cards, payday loans, unsecured lines of credit, old phone bills, etc.). Furthermore, you do not have to worry about losing your assets if you join a debt management program.
Choosing the right credit counselling agency
It is highly recommended to seek the help of a registered NON-PROFIT credit counselling agency to increase your chances of receiving unbiased information about your debt relief options, and avoid paying excessive fees. The agency should be a member of either the Canadian Association of Credit Counselling Services or Credit Counselling Canada. Members of both organizations are required to meet industry-wide standards, complete certain accreditation requirements and be licensed in the provinces they provide services to, in order to maintain membership.
Furthermore, if possible, seek help from an agency who requires their counsellors to become certified through the Accredited Financial Counsellor Canada Program to ensure that they have received standard training on relevant areas of personal finance before helping you with your debt.
Furthermore, if possible, seek help from an agency who requires their counsellors to become certified through the Accredited Financial Counsellor Canada Program to ensure that they have received standard training on relevant areas of personal finance before helping you with your debt.
Impact on credit rating
The credit counselling agency will not report anything to the credit bureaus. However, your creditors may report that you are paying back your debts through a Debt Management Program (DMP) or Debt Consolidation Program (DCP). This can be reported as anything between an R1 to an R9, depending on the creditor. It should be noted that most major banking institutions will report the debt as an R9 for the duration of the program. Upon completion of the program, the rating of the debt is changed to R7 - Account Paid, which will stay on your credit report for two years. During this time, many people choose to start rebuilding their credit. After the two years have passed, the paid off debt is removed from your credit bureau reports completely.
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If you think a Debt Management Program may be right for you, or would like to learn more about this debt solution, click here to get in touch with a non-profit Credit Counseling agency in your area.