Do you have a lot of debt? Are your monthly payments too high? If your debt is getting out of hand and you feel like you can’t control it anymore, enrolling in a debt management program (DMP) could be the solution you’ve been looking for.
But we also completely agree that the unknown is scary. Having some basic knowledge about the inner workings of a debt management program will allow you to take full advantage of it and hopefully achieve all your goals.
This is why we want you to know what to expect when enrolled in a debt management program before you make your final decision.
Key Points You Should Know About A DMP
- DMP stands for debt management program (DMP).
- A DMP involves your credit counsellor negotiating with your creditors to create a new repayment plan to pay off your debts.
- A DMP is best for those struggling with multiple high-interest debts but have the income to pay off all their debts by spreading out their payments and potentially reducing or freezing interest and penalty charges.
What Is A Debt Management Program (DMP)?
Also known as a debt consolidation program, a debt management program (DMP) is an informal proposal administered by a credit counsellor. The goal of a debt management program is to consolidate your debt and reduce your payments into one affordable monthly payment over a maximum period of 5 years.
However, it is important to remember that the goal of a debt management program is not to eliminate debt. It simply reorganizes it so that it is more affordable. In some cases, however, it may eliminate some of the debt you owe or waive any fees or accruing interest.
DMP Overview
| Type of Debts Covered | Unsecured debts such as credit cards, payday loans, and personal loans. |
| Duration | A DMP has a maximum term of 5 years. |
| Payment Structure | Clients make one monthly payment to a credit counselling agency, which then distributes it to their creditors. |
| Interest Rates | Interest rates may be reduced or frozen through negotiations with creditors, potentially lowering monthly payments. |
| Impact on Credit Score | A DMP will be recorded in your credit report and will stay on it for 2 years after you’ve completed the program. |
| Benefits | – Spread costs over time, thereby lowering your monthly payments – Multiple payments are simplified into one payment – Interest rates and penalties may be reduced or frozen |
| Drawbacks | – Can hurt your credit – Can take up to 5 years to complete – You still have to pay all your debts |
Where Can I Find A Debt Management Program (DMP) Near Me?
You can enter a debt management program by contacting a credit counselling agency. To help you find an agency with qualified counsellors who are in good standing with your provincial association, check out the following associations:
| Money Mentors | Learn More |
| 4Pillars | Learn More |
| Consolidated Credit | Learn More |
| Full Circle Debt Solutions | Learn More |
| BDO First Call Debt Solutions | Learn More |
| Raymond Chabot | Learn More |
Are You Eligible For A DMP In Canada?
- There is no minimum debt requirement, however, generally, it’s recommended that you only apply for a DMP if you have at least $10,000 of debt.
- The debts you’re looking to consolidate must be unsecured.
- If your creditors have started legal actions against you, those debts will not be eligible for consolidation.
- You must have a steady source of income to be able to make the DMP payments.
| Can I Enter A Debt Management Program With Bad Credit? Yes, if you have bad credit you can enter into a debt management program with the help of a credit counsellor. A DMP does not require borrowing money, so your credit won’t be checked and won’t play a factor in the process. Note that your credit counsellor may want to check your credit score for a complete picture of your finances, but it will be a soft pull and won’t affect your score. |
Types Of Debt That Can Be Included In A Debt Management Program
Generally speaking, only unsecured debts can be consolidated, such as credit card debt, unsecured personal loans, payday loans and unsecured lines of credit. However, in some cases, you may be able to add your secured debt.
Can Auto Repossession Debt Be Included In A DMP?
If your vehicle has been repossessed because you were unable to keep up with the payments, but you still owe money since the car didn’t cover the amount you owed, you may be able to include that debt.
Can Student Loan Debt Be Included In A DMP?
If you have private or non-government-insured student loan debt, you may be able to add that to your DMP. However, government student loans are generally not included in a DMP, as they often don’t work with credit counselling agencies.
Can You Include Past-Due Cell Phone And Utility Bills In A DMP?
If you have a past-due cell phone or utility bill and you’re no longer using the same service. It’s possible that you can include that debt in a debt management program.
How Does A Debt Management Program Work?
Unlike more drastic forms of debt relief like a consumer proposal or bankruptcy, a debt management program is not a legal process. Instead of working with a Licensed Insolvency Trustee, you’ll work with a credit counsellor who will help you through the entire process.
The purpose of a debt management program is to consolidate your eligible debts and pay them over up to 5 years. Generally, when entering a debt management program you can expect the following:
Meeting The Credit Counsellor
Your main goal when meeting with your credit counsellor is to provide them with as much information about your finances as possible. Your credit counsellor will require information regarding your income, expenses and debts. Be sure to bring along your bank statements and other financial records.
With it, your counsellor will:
- Figure out exactly how much debt you have.
- Create a budget that covers all your debt and necessary expenses.
- Negotiate with your creditors and agree on a monthly payment.
- Provide you with the tools and knowledge to deal with any future financial issues.
The Negotiation
The credit counsellor who you work with will negotiate, on your behalf, with your creditors and lenders in hopes of:
- Reducing your interest rates and/or eliminating any penalties you might incur or have already incurred.
- Extending the time required to pay off the debt (up to five years).
This way, you can continue to afford all the necessities of your life while working toward your goal of being debt-free.
The Payment
If your creditors agree to your credit counsellor’s proposal, you’ll begin making payments. These payments are paid to your credit counsellor, who will then distribute the payment to your creditors.
Once you’ve completed the program, you’ll be debt-free.
| Note that a DMP is not a legally binding process, so if you don’t make payments on time, your DMP may be cancelled. |
Can You Keep Your Credit Cards In A DMP?
Generally, any credit cards included in the DMP must be closed and cancelled. The only credit cards you may keep are the ones not included in your DMP. However, your credit counsellor may require you to sign a statement that you will not get or use any credit while in the program.
How Much Do Debt Management Programs Cost In Canada?
DMP fees are not regulated in Canada and can vary depending on the credit counselling agency you work with. As such, it’s recommended that you work with a credit counsellor who is part of the provincial or national association as they’re required to maintain a certain standard of practice.
That said, in general, you can expect your credit counsellor to charge you the following fees:
- Initial set-up fee
- Monthly maintenance fee
- Application fee
- Membership fee
- Upfront fee or fee for each creditor
If you’re unable to afford their service, you can ask if they can reduce the fees or if they have a sliding scale system.
What Are The Benefits Of A Debt Management Program?
As with anything in life, everything has its advantages and disadvantages. A debt management program is no exception. This is why it is important to understand what debt consolidation is and if it is the right choice for your situation.
Here are some of the benefits of a debt management program:
- Your Credit Doesn’t Matter – Unlike a debt consolidation loan, you can qualify for a DMP with bad credit.
- Reduce Your Monthly Debt Payments – By spreading your payments over 1-5 years, your debt payments can be much more affordable.
- Interest/Penalties May Be Waived – Your credit counsellor may have been able to have your interest rates and penalties reduced or waived. This means more of your money will be going toward paying off the principal rather than the accumulating interest.
- One Payment – Instead of having to track multiple payments, you’ll only have to worry about making one monthly payment. You’ll make your payment to the credit counsellor, and they will distribute the money to your creditors accordingly.
- Avoid Black Marks On Your Credit History – One of the best parts of a debt management program is that you’ll be avoiding a more serious financial issue, like bankruptcy or a consumer proposal.
The Disadvantages Of A Debt Management Program
Here, we’ll go over the disadvantages so you can make an informed decision.
- Voluntary Program – A DMP is not legally binding, meaning your creditors don’t have to agree to your proposal and can drop out at any time.
- Creditors Can Still Contact You – You won’t have any protection from your creditors, and they can still contact you or send collection agencies after you.
- Impact On Credit – Your DMP will be recorded on your credit report with an R7 credit rating, and it will remain there for 2 years after you’ve completed your program.
- No New Credit – Not only do you have to close and cancel any credit cards included in your DMP, your counsellor may also ask you to sign an agreement that you will not use get or use any credit while in the DMP.
- Agreement Can Be Cancelled If You Miss A Payment – If you miss any payments, the entire agreement may be cancelled.
Debt Management Program vs. Debt Consolidation Loan
A debt consolidation program, also known as a debt management program (DMP), should not be confused with a debt consolidation loan. While a DMP is an informal proposal that is administered through a credit counsellor, a debt consolidation loan is simply a loan that you apply for with a lender to consolidate your debts.
Here are some of the key differences between a debt management program and a debt consolidation loan.
| Debt Management Program | Debt Consolidation Loan | |
| Process | Your credit counsellor will negotiate a debt consolidation plan with your creditors. | You must apply for a loan with a lender. |
| Legality | While your creditors are not legally bound to the contract, they agree to the proposal set by your credit counsellor. | You’ll be bound to your new loan. Any missed payments can affect your credit. |
| Interest | Depending on your DMP agreement, your interest charges may be reduced or waived. | Your lender will charge you interest on your loan. |
| Eligibility Requirements | You do not require anything to enter a DMP. However, you must be able to afford the debt consolidation payments. | To qualify for a debt consolidation loan, your lender will have certain requirements regarding your credit score, income and debt level. |
Learn more: Debt Consolidation Loan vs. Debt Management Program
Alternatives To A Debt Management Program In Canada
If you’re struggling with debt, there are a few options you can consider, including:
- Consumer Proposal – A consumer proposal is a legally binding agreement administered by a Licensed Insolvency Trustee (LIT). With the help of your LIT, you’ll propose to pay off a portion of your debts to your creditors over a maximum period of 5 years.
- Orderly Payment of Debts (ODP) – Currently only available in a few provinces, this debt relief option allows you to consolidate your unsecured debts with an interest rate of 5%.
- Voluntary Deposit – This option is only available to those who live in Quebec. It allows borrowers to avoid asset seizures and bankruptcy by making regular, agreed-upon payments.
- Bankruptcy – Bankruptcy is a last resort, as you can lose your assets with this option. That said, within 9 or 18 months, if you need to make surplus payments, you’ll be debt-free.
Learn more: Debt Relief Programs In Canada: What Are Your Options?
Bottom Line: Get The Debt Relief You Need
If you’re feeling a lot of financial stress, it’s best to enroll in a debt management program sooner rather than later to take control of your debt quickly. Remember, becoming debt-free is a journey, one that will take a lot of hard work and effort from you. The most important thing for you to do is learn from this experience, listen to your counsellor and work hard to get rid of bad financial habits and create new good ones.
