You make one monthly payment to the counseling agency and they divide the payment among the creditors in an agreed upon manner.As you make your DMP program payments, you will start reestablishing your credit through regular monthly and on-time payments.The average interest rate for credit cards in December 2015 was 14.95% but it can skyrocket to as much as 29% for consumers with bad credit histories.The Premiere Bankcard has an eye-popping rate of 79.9%.That would be a problem for lenders, who typically get skittish when the debt-to-income number climbs above 40 percent.Lenders offer different interest rates, usually 5.99% to 32.99%, or other terms based on the risk that the borrower will not repay the loan.For example, Prosper, an online lending company, requires a credit score of 640 or higher.
When the agency thinks it has enough money, it goes to the creditors and attempts to negotiate a one-time settlement, generally for less than the balance owed.
It’s known as “risk-based pricing,” and the bottom line is simple: The lower the risk, the better the interest rate terms.
Sometimes the “risk” is too great to qualify for a consolidation loan.
You make one payment, and the fixed interest rate should be lower than the fluctuating rates of credit cards.
Some banks and a variety of on-line lending sites offer consolidation loans.
In a DMP, you generally will have to close most of your credit cards and be on a 3-to-5 year repayment plan.