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Do I Buckle Down and Payoff My Debt or Enter a DMP? – Erica


“Dear Steve,

I still have a good credit score, been paying minimums mostly but spend 45% of my take-home on credit cards. Not in trouble yet but can see it coming with the cards jacking up their interest rates.

In the last 4 years I’ve had layoffs, underemployment and no health insurance which has contributed to the debt, but primarily I think I just live beyond my means. I’ve increased my debt by 50% in that time. Do I buckle down (finally), work hard and make sacrifices to take care of it- as I’ve read of people doing, or enter a DMP?

DMP or buckle down?


Dear Erica,

This is one of the hardest questions to answer. You see debt repayment is not about just the technical aspects of paying down debt. If you approach it that way, people will fail each and every time.

Debt and money troubles are often the symptom of greater underlying issues. Take you for example, while times have been hard you recognize that you have, at times, lived beyond your means using borrowed money. That contributed to your overall debt.

Buckling down for you will be successful as long as you are willing to make fundamental changes in the way you approach life and what you are willing to do without. If you can emotionally come to terms with going without in order to live within your income, it is possible.

Many people start this journey by making a budget. A budget built on estimates rather than real data is nothing more than a page of lies. But a budget doesn’t have to mean you go without either. It is healthy and appropriate to budget in reasonable fun stuff as well.

Instead what you need is a spending plan. This is a plan that is actually based on how you really spend your money. You can find detailed instructions for this in my book, Eliminate Your Debt like a Pro. If you follow that link you can download it for free. Start on page 81.

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Instead of immediately making all sorts of cuts, spend a month tracking how you do spend your money. From that data you can make good informed decisions on where you want to make cuts.

When preparing what your expenses are each month you need to add in health insurance and savings. Even when digging out of debt you need to save money. If you don’t have any money saved and something comes up that you have to pay for, what are you going to do, put it back on a credit card you’ve worked so hard to whittle down. Plan to put at least $50 a month in a boring old savings account. And health insurance is necessary as well. One unexpected illness can wipe out all the debt reduction progress you will have made.

Now, if you track your cash, make a spending plan, factor in savings and health insurance and you can’t afford the minimum payments on your credit cards, the answer has been made for you. In that case a debt management plan won’t work for you.

If you can afford at least the minimum payments on your cards at that stage then maybe a debt management plan is something to look into. The advantage is that your creditors will reduce your interest rates. The disadvantage is that it will hurt your credit.

If you want to get out of debt and improve your credit report and credit score, pay at least the monthly minimum payment and pay the debt off in full.

Let me know in the comments section of this question if you think that sounds like a reasonable approach to you.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


  • I am a bankruptcy attorney in Southern California. Rarely have I even seen a client benefit form a debt management plan. If someone has the room in their budget to fund a DMP, the are probably also a lot better on in a Chapter 13 bankruptcy instead. Feel free to check out my blog for more information on my views of debt management plans:

    Carl H. Starrett IIs last blog post..Struggling With The Decision to Call a Bankruptcy Attorney

  • Approximately 27% of our clients repay their obligations through our service. As for enrollments, I have heard that the largest national agency enrolls approximately 30% of those they speak to. Our counselors work to identify the best possible solution for consumers; therefore, if all the information indicates that a DMP would yield the best results, that would be the recommendation.

    We find many times that devising a Spending Plan, as you described in your post, can have a profound impact. Our counselors conduct Post-Counseling sessions with those who are counseled to develop such a plan and the feedback we receive is extremely encouraging.

    — Thom

    • The 8% figure came from AICCCA regarding their member agencies. David jones, the president of Association of Independent Consumer Credit Counseling Agencies said, “The agencies affiliated with the AICCCA used to be able to help 20-25% of the people who came to them to avoid bankruptcy. Now they find they can only help about 7-8%, Jones explained.”


  • I agree with most of what you have stated; however, I find the comment of a DMP damaging one’s credit misleading. In the interest of full disclosure, I am employed by a credit counseling agency; however, my comments are made from the perspective of an educator. According to Fair Isaac and Company, a DMP is a neutral mark on ones credit profile. Therefore, there is no negative weight to such an item from the perspective of the credit scoring system.

    The larger issue is if someone qualifies for such a program, their credit is more than likely compromised already, or on the verge of becoming so. Most of the people who qualify for our service (roughly 13% of those counseled) are in way over their head. Through a combination of education and enrollment, the program helps someone get a firmer grasp on their financial situation.

    While the accounts enrolled on the program will be closed, resulting in a reduction of one’s score, the long-term benefits are substantial. A handful of studies have indicated that those enrolled in a DMP had a significantly higher score after 2 years.

    As for fees, our program has a 75/50 sliding scale structure. However, the fees charged are far less as they are based upon one’s ability to pay them. Currently, we provide services absolutely free to 6.5% of our clients as their financial situation prevents them from affording these charges.

    • You are correct, while credit counseling used to reported as an R7 on the credit report, the same as bankruptcy, it has been updated. The ding to the credit comes from the cards being closed by the creditors. That sudden loss of the credit history can lower the score fast.

      Just curious, what is the current percentage of people that enroll through your credit counseling group that make all the DMP payments to the point of successfully paying off their debt through the DMP? In general the number used to be in the 5% range. I haven’t gotten an update in a couple of years though.

      I read yesterday that one of the larger CCCS agencies was claiming an 8% assistance rate, yours is higher.


  • I’m not sure harming my credit is the worst thing- what I really don’t like are the fees that the DMP’s require. Will they save me that much and more in interest? Why hold on to a good credit score when all I’ve done with it is overextend myself?

    Thank you Kelly, I like the idea of a no-spend month, but I would probably still eat out since food is a necessity :).

  • Great advice!
    We are going through the same thing paying down debt, it can be SO tough.

    Just make sure to include some room in your budget for fun, or you will quickly burn out. We include about $150 for allowances a month (sometimes we don’t spend it). $50 for the kids (there are 4 of them), and $50 each for my husband and I.

    We also are willing sometimes to forgo expensive takeout or pricier grocery items if it means an outing for the fam.

    It may help to have a “No Spend Month” where you only spend on necessities (groceries, gas/transportation costs, and of course bills). The idea is to really pay attention to your impulses, and where you are tempted to spend. It works really well as a jumpstart for savings too.

    Good luck!

    Kellys last blog post..around the web: estate planning edition

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