Lower bills and pay off debts from a Debt Management Plan (DMP).
What exactly is a debt management plan (DMP) and how can it help?
They are offered from a credit counseling agency, a private or non-profit debt management company, or directly from a credit card issuer. A DMP involves the company that is offering the service to negotiate with creditors on the consumers behalf. It will often involve a highly trained counselor talking to a creditor. They do this in an attempt to lower the interest rates and/or monthly payments on your unpaid debts and bills. They will also try to waive fees if applicable.
What type of bills are included in a debt management plan?
Most types of unsecured debts, such as credit card, medical bills, payday loans, and student loans are included in 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. When entering into this arrangement, also try to include all outstanding obligations that you have. Always be sure to get the specifies on your plan and what bills are covered.
How can I benefit from DMP?
There are many benefits of a debt management plan. They include some or all of the following.
- They can lower a consumers monthly debt payments and reduce their interest rates.
- Many fees and charges, such as late fees and over limit costs, are waived off.
- Once the process has started, it will stop any harassing phone calls from your creditors, lenders and debt collectors.
- You will be required to make only a single monthly payment to pay all your bills.
When should I 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 counselor. These plans are just one solution you should explore though, and they are not means to an end.
- If you have multiple bills and debts that are owed, such as medical, credit card, student loans, and if you cannot manage them efficiently.
- You are experiencing a financial crisis or emergency and wish to get rid of your debts during this window of time.
- It can stop collection calls.
- You need to lower the interest rate on your bills and debts.
- If a consumer does not think a DMP is the best option for them, than an alternative to a debt management plan is a credit counseling agency.
What happens in a DMP?
A credit counseling agency or a debt management company will need to closely review your financial situation. The client needs to provide them with documentation on all of your accounts and financial obligations. This review will take into account the interest rates you pay on your debts and other bills, the required minimum payment, and your total debt amounts that are unpaid.
You will then need to enroll. At that point the company will work on your behalf during he length of the agreement in place. A specialist will negotiate with your creditors in an attempt to lower the monthly payments and interest rates.
The credit counseling agency or provider you select will then work out a repayment plan with your creditors. They will agree to an amount that needs to be paid each month on all of the debts, but it will allow you to pay back the outstanding balance.
After this is successful, you will make a single monthly payment to the credit counseling agency or debt management company. It is usually due at the end of the month, but the dates can vary for each client. This company will then disburse the payment to your creditors until all debts have been eliminated.
What do I need to do to make this successful?
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 need to get everything in writing. Get the terms and conditions 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 are discussed and the terms are put into any agreement.
Get the DMP approved by your creditors. It is safe to ask your creditors so that before you sign on a DMP, make sure the creditors approved it. Don’t just relay on what your are told by a company or credit agency. Call the creditors directly to verify.
Make regular payments once the plan is effective. This is absolutely critical to ensure that all of the household's debts are paid down over time. Don’t miss any payments. Even being late on or missing just one payment can cancel the deal and put the consumer back to square one.
Be aware of fees or costs from the debt management company or credit counseling agency. As noted, this should be done in writing. Find out about all charges and fees charged by the company for their services. Make sure you are still paying less money, even after their fees, then you would if you didn’t not use their services. Also compare costs between companies to ensure that you are not paying higher fees that what the rest of the industry has in place.
Verify your payments. Make sure the company you are working with doesn't send late payments to your creditors. It is also generally wise for the client to verify that all payments are made and received each month.
Find additional pros, cons, and an FAQ on debt management. More.
Does a debt management program affect your credit?
No. When you are using a debt management plan, your credit report will indicate that you are making payments through a credit counseling agency or some other provider. While this will be noted on your report, however, the credit reporting agencies will not lower a credit score from these plans.
The bottom line is that a debt management program will help you recover from problems that are the result of credit card debt, medical expenses, loans, and more. You just need to keep making payments and stay on track with the plan. While it doesn’t happen overnight, eventually individuals will be debt free from these programs and their credit scores will be improved.
How do I get started?
The easiest and most effective way to start a debt management plan is to contact a credit counselor. Read more. Counselors will guide you through the process, negotiate with your creditors, and they will provide you with the best chance to be successful.