Debt management plans (DMP) are an effective alternative that can allow better repayment terms with creditors.

With this type of solution, a company works on the consumer's behalf to help repay debt in full. Most creditors offer lower interest rates and lower payments. They might also offer to stop late and over-limit fees. Once enrolled with a debt management plan, collection calls will stop and creditors may also re-age the account to report the accounts as current to the credit bureau.

While a consumer is on a debt management plan, the credit cards will be closed. As long as payments are made on time, no negative information is reported to the credit bureaus. Some creditors may report that the accounts are being handled by an outside company, but it doesn't affect a consumer's credit rating. Some creditors may view this notation as a potential risk, but most creditors view it as a positive because the consumer is serious about fulfilling credit obligations.

Some debt management companies can also provide counseling and education pertaining to budgeting, credit, and money management.

Things to Consider

• Look for agencies with certified credit counselors.
• Get a full explanation of all fees involved.
• Find out if the organization is a member of an association within the credit counseling industry.
• Check with the Better Business Bureau or the Attorney General's office in your state.
• Be certain that the agency is accredited.