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Do debt management plans work?

Sometimes they do!  Debt management plans work if you have the right kind of debt, the right creditors who will agree to negotiate, and if you have enough income to pay the payments you negotiate with the creditors.  As a certified debt arbitrator, I have settled many thousands of dollars of my clients’ debts outside of the bankruptcy process.

Debt management plans work best, even better than bankruptcy, if you have a way to fund payments to the creditors, at a level that they agree to.   Most of the time this will be around 80%.  Seldom will debt management plans work if you cannot pay at least that much, unless you can afford to pay the creditor a lump sum (which is normally not an option).

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Debt Management Plan (DMP)
aka Credit Counseling
100% Repayment

NOTE: Creditors may refuse to participate in this option


Debt Settlement Plan (DSP)
aka Debt Negotiation
80% Repayment
Monthly Payments

NOTE: Creditors may refuse to participate in this option


Chapter 13 Payment Plan, from 1% to 100%
100% 50% 10% 1%

NOTE: All creditors are forced to participate, they may not refuse

The calculator presumes that you are going to have to pay a fee for the services of the debt management plan, and the plan will negotiate a reduction in the amount that you will pay.  You will make payments directly to debt management plan, not your creditors.

Debt management plans do not work with all creditors.  Some creditors simply refuse to participate, and the debt management plan cannot force any creditor to work with you.  Creditors are free to agree, or not participate.

Debt management plans are different than debt settlement, or debt arbitration.  In this debt reduction model, you stop making ANY payments to your creditors, and you pay monthly to the debt settlement company. Who holds your funds and tries to negotiate lump sum settlements with your creditors.  The settlement funds come from the monthly payments you make.  This is a dangerous game of “chicken” with creditors, who sometimes elect to sue you instead of working with you.