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Debt management plan.

Learn how to get help from a Debt Management Plan, often called a DMP. The programs are available from credit card companies, online lenders, payday loan organizations, banks and free non-profit credit counseling agencies. Find how a debt management plan, will provide assistance to struggling families, including with credit card, medical bills, loans and other types of debt.

Any borrower who needs help getting out of debt or paying off loans can sign up for a DMP, most of which are free to enroll into and have no application costs. The application process is often easy and quick. In fact, many non-profit credit counseling agencies are involved in offering this solution as are national as well as regional banks as well as online lenders.

What is a debt management plan (DMP)?

A Debt Management Plan is a formal, structured repayment plan set up and managed by a professional organization, normally a credit counseling agency or non-profit organization. However some banks, credit card companies, credit unions or other organizations will manage a DMP on behalf of the borrower. Many borrowers who last their jobs, have a personal financial hardship or have zero income benefit from emergency debt management programs.

The DMP agency negotiates with all your creditors to potentially reduce interest rates, waive fees, and lower monthly payments. It will often involve a highly trained counselor talking to one or more creditor(s). The DMP will help you with all your debts and loans, including BNPL installment loans, credit card bills, car payments and more.

Instead of multiple payments to various creditors, you make a single monthly payment to the counseling agency, which then distributes the funds to your creditors according to the agreed plan. They will also try to waive fees if applicable.

Under these plans, a consumer will pay a specified monthly payment directly to the non-profit credit counseling agency or DMP provider. The amount will be based on what exactly the family owes and what (if anything) the counselor could get written off. Then once the agency receives the payment from the client, the company will disburse those payments to the consumer’s creditors.

 

 

 

While the amount you need to pay for this service will vary, overall the fees for a debt management plan should be fairly low if not free, and they should even be waived or reduced if you can’t afford to pay them. This is one of the pros to using a non-profit, as they may offer a DMP for free to very low income clients. In fact, many low-income families, veterans, single mothers and others are able to enroll into a free debt management program.

A successful debt management plan will usually take approximately 24-60 months to be concluded, however the exact timeframe will vary. In either case, the reduction in debt and results of a DMP tend to be fairly rapid. The amount of your monthly payment is the key determinant as well as the amount of creditors and the household’s income.

The DMP plans will not only help borrowers erase their debt, but they also help people get quickly back on financial track. The programs will also encourage people to set aside funds and savings for a financial safety net for any future emergencies. These plans, with lower up front monetary obligations and repayment rates, will allowing people to build some emergency savings. This can hep low-income families or people in a hardship start to accumulate funds that will prevent them from falling back into debt easily in the future.

What type of unsecured debts are included in a DMP?

The goal is to include every single financial obligation that the borrower has. Therefore most (if not all) types of unsecured debts, such as credit card, medical bills, payday loans, car payments and student loans are included in a debt management plan. Buy Now Pay Later fees and installed loans are also included as part of a debt management plan. If there are any other obligations a family has, those should be reviewed as well to see if they are relevant.

Since the individual will only be making one payment per month when the DMP is active, it is critical to ensure all creditors are part of the Debt Management plan. When entering into this arrangement, also try to include all outstanding obligations that you have, no matter who the money is owned too. Always be sure to get the specifies on your plan and what bills are covered.

 

 

 

 

When to use a debt management plan?

While each consumer has their own, unique financial situation that they need to deal with, there are some common themes as to when someone should use a debt management plan. But each situation is unique, and anyone that is interested in proceeding should discuss this closely with a free or affordable credit counselor. These plans are just one solution you should explore though, and they are not means to an end.

The right time to consider a DMP is when you're consistently struggling to meet minimum monthly debt payments. If you are behind on an auto loan, or struggling with credit card payments, a DMP will assist. They are effective options for student loans, title loans, and even medical expenses. It can be do to loss of a job, reduction in income, unexpected expenses or some other financial headship. A debt management plan is a good options to use if your debt is not decreasing and you're experiencing financial stress.

Be sure to agree to a plan only if you can afford to make the monthly payments. In other words, if the debt management company or credit counseling agency can’t negotiate for a repayment plan you can afford to pay month in and out, then it is better not to even use their services. You still may be able to negotiate down principal though. Find tips to negotiate credit card debt.

You need to get all the terms and conditions of a debt management in writing. Get the terms and conditions of all agreements with all lenders as well as a third part counseling agency in writing. Also verify the monthly fees, the length of the program, and read all documents before you sign the agreement. Be sure that any fees, time commitments of the debt management plan and cancellation fees are discussed and the terms are put into any agreement.

Always consider the benefits, pros, negatives and cons to a debt management plan as well. As this option will not be the best assistance program for everyone. This will help you determine whether this option is the best one for you. Find additional pros, cons on debt management plans.

How to have success from a debt management plan?

If you want to know how to be successful, the key is that the program is mostly dependent on you. Below are are some of the key tips and steps to take to ensure your Debt Management Plan is successful.

The most important tip is that you need to make your payments to your creditors on time. The majority of credit counseling organizations will establish a pre-authorized payment plan so that the recurring monthly payment comes directly out of your bank account at a set time each month. Even being late on or missing just one payment can cancel the deal and put the consumer back to square one.

 

 

 

If you experience any problems with the plan or a experience a change in your financial situation, you need to immediately contact your credit counselor or company that is overseeing the DMP. Always remember that this individual is there to help. They want you to be successful. So if you have a problem, don’t understand something, or if you anticipate problems with your monthly payments, so not hesitate to contact them. If your address, phone number, or e-mail address changes, notify your credit counselor immediately, as they need to have your updated contact info.

Be sure to closely monitor your statements from creditors. Some DMPs may continue to send you monthly account statements from your creditors. Take it upon yourself to closely monitor these to ensure that your creditors have stopped charging you late fees, or ensure they have reduced the interest rates they are charging (if that is what the creditors agreed to.

  • Also it is also recommended the the client verify that the payments from your credit counselor are being properly applied to the correct accounts. Always keep copies of all your credit card statements, notices, and records of auto loans and more, so that if there are problems in the future with your program you have proof of payment and what occurred.

Never make direct payments directly to your creditors, unless you have very clear authorization from your non-profit credit counselor. The reason people set up a Debt Management Plan and the main purpose of it is to have your counselor work closely with you to negotiate, settle, and deal with your debts, not for you to deal with corporations and any debts directly.

Another important tip to be successful is to never apply for additional credit or cards during the term of your DMP. Do not take out other Buy Now Pay Later Loans or unsecured debt, or do not use a payday or title loan company. You can if you have the prior approval of your credit counselor, but even with that approval it is not a good practice to take on more credit.

  • The reason most people start this process, and the goal of your Debt Management Plan, is to help get you out of debt, so applying for more credit during your DMP contradicts that goal. It also may in fact invalidate your plan. It can also open up the door to have your creditors resume their regular collection activities and they can even reinstate regular interest rates and charge you more fees.

 

 

 

 

 

 

How to enter into a DMP with credit card companies

Most credit card companies / banks offer this form of assistance to their customers. The banks, lenders, and companies include American Express, Bank of America, Chase Card Services, Capital One, as well as Citibank. A DMP is also offered from Discover Financial Services, HSBC Card, Synchrony, U.S. Bank and last, but not least, Wells Fargo Card Services.

Some of these lenders offer a debt management plan directly to consumers - others work with non-profits or credit counseling services. Numerous creditor provide help in the form of some repayment concessions, including waiving over-the-limit fees, late fee, and also providing a reduction in interest rates. The main DMP from national banks are as follows.

There are also independent organizations, non-profits groups, charities, and others that offer debt management plans. They can contact your lender directly on your behalf to try to get you relief. Or they can offer you advice and other aid, such as access to budgeting skills or free workshops. Locate local non-profit consumer Credit Counseling Services near you.

 

 

 

Another resource that is fully supported by the National Foundation for Credit Counseling and many credit card companies are hardship plans. These have some of the same traits as a DMP. Look into any credit card hardship programs that your credit card company may offer. More on credit card hardship programs.

There are ways to get started too. Maybe the quickest and most affordable way to start a debt management plan is to contact a credit counselor. There are locations in each and every state, and many of the services are free. Among other things, they can show you how to start a debt management plan. Counselors will guide you through the process, negotiate with your creditors, and they will provide you with the best chance to be successful.

 

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By Jon McNamara

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