Affects of DMP ? Will DMP hurt me in the long run ?

[Anonymous]

Hello, I'm 25 years old and unforuntately acculumated too much debt for me to handle. Since I need to get a grip and take control, I've just decided on joining a DMP instead of getting into debt settlement. I owe about 24,000. Now I make just enough money to pay all my cc minimums, but I would simply be living paycheck to paycheck. Some of the apr's on my cards make me feel like i would never in life be able to pay off.  My question is, how long after I complete the DMP will my credit start to improve ? Is it 6 years from the end of the plan or 6 years from the beginning of the plan ? I hope Im making the right decision, I just need to get out of this hole. Advice ? Tips ? 

[mattmyFIC0]

Initially your credit will be pretty bad when you start the DMP because they make you close all the accounts and the utilization will be maxed (zero available with big balance). Towards the end of my DMP my scores were pretty decent and I was able to start getting cards again. You just can't worry about your score during it and it won't really matter since you aren't supposed to apply for anything while it's going anyway.

One thing to be extra careful about is making sure that your payments are made on time. All of my creditors had accepted the terms but some still reported me as paying late payments because the DMP payed the payments after the card company wanted them. This happened on my two BofA cards which both still show the 4 30 day lates. Amex was interesting because they reported my account 120 days late during the whole DMP and then once it was payed off they corrected it to no lates. 

If you can afford it I would pay things off as quickly as possible to avoid paying the DMP company all the fees while you are using them. I ended up paying around 2K for their monthly fee. I finished my plan ahead of schedule and just payed off a few cards on my own without going through the DMP even though the cards were enrolled with the DMP.

My two regrets from my experience were losing my oldest Chase card I had since I turned 18 and how much I payed them to run the plan for me.

[sjt]

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@Anonymous wrote:

Hello, I'm 25 years old and unforuntately acculumated too much debt for me to handle. Since I need to get a grip and take control, I've just decided on joining a DMP instead of getting into debt settlement. I owe about 24,000. Now I make just enough money to pay all my cc minimums, but I would simply be living paycheck to paycheck. Some of the apr's on my cards make me feel like i would never in life be able to pay off.  My question is, how long after I complete the DMP will my credit start to improve ? Is it 6 years from the end of the plan or 6 years from the beginning of the plan ? I hope Im making the right decision, I just need to get out of this hole. Advice ? Tips ? 

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I personally think you are making the right decision. Your credit will take a hit but you will recover. Some DMP plans have the benefit of positive credit reaging. 

[redhed1026]

I've been in a DMP for about a year and a half. I was never late on any of my payments, but I was WAY in over my head with the amount of debt accumulated. Since I entered the DMP, my scores have gone up more than 30 points. You have to pay attention when you first enroll in the program, to make sure payments are being made on time (you may have to continue making payments on your own until the DMP is established), but I have never had any issues with things being paid late. I went through Guidewell Financial Solutions in MD- I can't say enough good things about them (they're non-profit). I do pay them $40 per month to administer the plan, but I feel that is fair and reasonable. 

[blossom_rebuilding]

DO. IT. My situation was just like yours in my mid to late 20s...I had no skills or knowledge to manage money, had way too much credit card debt, and was working for peanuts, so even though I really wanted to get my act together, I lacked the knowledge and means to do it on my own. I was just in over my head. A DMP forces you to close your accounts, yes, but the flip side is that it's a great way to figure out which cards you really need and which ones you use just because you have them. DMPs gives you the kick start that you need to figure out your entire financial pciture, and helps you to get your payments manageable while also forcing you into creating a budget and sticking to it so you don't get in over your head again.

Yes, your credit will take a hit when you close your accounts, but that's a short-term problem that will ultimately get you to a long term gain. I used a DMP for more than three years, which helped me pay off most of my balances in their entirety, and put me on the road to paying down debt on my largest balance with Citi (it still went charge off, but that's another story). In the few years since I finished the DMP, my credit score has recovered (starting from the 500s to now being at 670 to 683 across the board). Though I still have a relatively high balance with my active AmEx despite several years of on-time payments now (AmEx doesn't participate in DMPs, unfortunately), I kept very responsible usage with my only other active card (Capital 1 Platinum) while I was on the DMP. AND I just recently left the garden and was approved for new cards with PNC, Comenity (Ulatamate Rewards MC), and Discover with decent credit limites and interest rates, so I'm hopeful I can crack 700 in 2017.

All that to say that I was despairing for my financial life in my twenties, but the DMP helped propel me to a great place now that I'm in my early thirties. It's astounding how far a few years of solid payment history and responsible credit usage will get you. There is a light at the end of the tunnel! You just have to take the first step. Best of luck!