Debt management plan cannot be compared to loan; but it is debt management companies who work with creditors on your behalf and reduce monthly payment and interest rates and can also waive or reduce penalties. Both the parties agree on a payment schedule that will allow you 3 to 5 years to pay off your debt.
Debt management plan is a part of the package of debt consolidation programs that are designed for helping people to reduce unsecured debts. An unsecured debt includes credit cards, medical bills and student loans.
This is the one way by which you can control your debt and also reduce the number of payments made by you each month saving money on interest and fees.
Those who register for debt consolidation programs have to make monthly payments with credit counselling organization. This payment is then used to pay off debts according to the payment schedule. Whatever you have to pay monthly is customized as per the paying capacity of the customer; it is determined with an analysis of household income vs. Expenditures.
Advantages of a Debt Management Plan
- Offers credit card consolidation with debt consolidation refinance
- Stay more organized and punctual with your bills
- Creates a monthly budget with a financial goal
- Regular and timely payments would improve credit report and credit score
- Creditors or collectors will stop calling
Consider a Debt Management Plan
Before choosing debt consolidation programs you have to choose a credit counselling agency that would help you with the process. Most of these are non-profit and can offer credit counselling free of charge, and some charge fees.
There is a strong recommendation by Federal Trade Commission (FTC) to find a reputable credit counselling organization that has certified counsellors trained in consumer credit and debt management. These organizations help in managing debt and also develop a practical budget.
One should also check with the local consumer protection agency to ensure there haven’t been any consumer complaints and also that the organization is licensed.
Make sure you are aware of any hidden fees, scams and fraudulent organizations. Check the company’s record and once you have found a credit counsellor with whom you are comfortable, that person will review your finances and help you create a budge. Also, they will advice the best debt consolidation refinance or plan.
Also read: credit card refinancing vs debt consolidation
Points to remember while enrolling for DMP
- It takes 36 to 60 months for repaying debts with the help of DMP
- Credit counselling organization can restrict using or applying any additional credit once you have enrolled for the plan
- If the payments are late, consumer can also lose the progress on decreasing the debt and lower the interest rate on debt consolidation refinance
- One can qualify for lower interest rates with a lower monthly payment for debts
Signing up for Debt Management Plan
Once you have chosen the right debt management plan for you, the credit counsellor can help you enrol. The counsellor will help with creditors in negotiating the interest rates and come up with a payment schedule. The schedule will be reviewed and approved by you.
Once the expenses are determined and the money left after all the basic living costs such as rent, mortgage, utility bills, living expenses, etc; the remaining amount is then divided among creditors.
Then, you’ll be paying monthly to your credit counselling organization and the organization would distribute the money to your creditors as per the agreed payment schedule; unlike the consolidation loans for bad credit.
Debt management plan cost you less; you just have to pay a small one-time set-up fee and a small monthly maintenance fee.
Step-by-Step Process for Debt Management
If you would like to participate then go online and research for the best debt management companies or can also look for consolidation loans for bad credit.
You can find various non-profit and for-profit companies for debt management plan. Look for reliable company with trained and certified credit counsellors by the National Foundation for Credit Counselling.
Before calling, make a list of your monthly income and expenses. Be accurate, using recent pay stubs and bank statements with a list of all bills paid and unpaid. With all these information available call the company.
