Can You Cancel a Debt Management Plan?

Can You Cancel a Debt Management Plan?

A debt management plan (DMP) is a voluntary agreement between you, your creditors and a credit counseling agency. Typically lasting three to five years, a DMP can make your unsecured debt―usually credit card balances―more manageable and help you avoid the consequences of not being able to keep up with your obligations.

But if you change your mind, you can cancel a DMP at any time. Some of the potential reasons you may consider canceling your DMP include:

• Your financial situation has improved and you no longer need the DMP.
• You've received a windfall of cash and can pay off your debt in full.
• You no longer want to pay the plan's monthly fee.
• The plan is simply not working for you.

Should You Cancel a DMP?

Depending on your situation, canceling a DMP can have both advantages and disadvantages. Understanding the pros and cons can help you determine whether it's the right decision for you.

Pros of Canceling a DMP

• You can avoid monthly fees. Monthly fees on DMPs can vary based on the agency you're working with and your particular plan details. But on average, it costs $35 per month, which adds up to $2,100 over five years.
• You can pay off your debt faster. If your financial situation has improved, you may be able to pay off your debt more quickly, saving you some money on interest charges and fees.
• You'll regain access to credit. It's possible to open new credit while you're on a DMP, but it could jeopardize the terms of your plan, and new lenders can see that you're on one and may adjust your loan terms accordingly. If you cancel your DMP, you may have more opportunities to get credit without limitations.

Cons of Canceling a DMP

• Things may get more expensive. When you're on a DMP, your credit counselor will typically negotiate lower interest rates and monthly payments, as well as fee waivers, with your creditors. If you cancel, though, your creditors will likely reinstate the original rates and fees.
• You'll have to deal directly with your creditors. On a DMP, you make just one monthly payment to the credit counseling agency, which distributes the money to your creditors on your behalf. Once you cancel, you'll have to start making individual payments to each lender again.

• You may start receiving collection calls. If some of your debt is in collections, you may start getting calls from the collection agency again. If you can't make your payments, you could be subject to a lawsuit.

Is There a Fee to Cancel a DMP?

While canceling your DMP will prevent you from having to pay future monthly fees, the credit counseling agency may charge a fee to cancel the contract.

You may also not be able to get a refund of previous fees you've paid—some agencies may offer refunds if you cancel within the first month or so. Double check your agreement or speak with your counselor to see what the terms are for your situation.

How to Cancel a Debt Management Plan

Before you proceed, make sure you read the terms of your DMP contract to understand all the potential consequences of cancellation.

If you can't afford to pay off all of your debt immediately, make sure you have alternate plans in place to keep making payments before you cancel your DMP to avoid further consequences. With that in mind, there are generally a few different ways you can cancel a DMP:

• Contact the agency and your creditors. Depending on the agency you're working with, you may be able to cancel your DMP over the phone or in writing via email, mail or fax. You'll also want to notify your creditors of your decision so you can discuss the path forward.
• Pay off your debts. There's generally no penalty for making extra payments on your DMP, and if you can afford to pay off all of your balances at once, that'll end your agreement early.

• Stop making payments. In some cases, missing just one payment on a DMP will result in cancellation, while others may allow up to three missed payments. That said, communicating with your credit counselor and creditors instead can leave a better impression with your creditors and prevent damage to your credit score.

Monitor Your Credit as You Pay Off Debt

Whether or not you decide to cancel your debt management plan, it's important to keep a close eye on your credit score to understand how your actions impact your overall credit health.

With Experian's credit monitoring service, you'll get access to your FICO^® Score^☉ and Experian credit report for free, as well as real-time alerts when changes are made to your credit report. As you work to pay down debt and improve your credit score, keeping track of your progress can help you ensure success.