How to start a debt management plan.
A Debt Management Plan, which sometimes can be referred to as a program, is when a settlement is arrived at between you and your creditors. They are usually used to help people eliminate credit card and medical debts, however the plans can work with other creditors as well. You will need to work with a counselor throughout this process. Read more below and find out how to start a successful debt settlement plan.
It is always recommended to use a professional to start this process. When you work with a credit counselor, they will negotiate a payment plan directly with your creditors. They will also assist you with making a budget to determine what you can afford to pay on your outstanding bills each month.
How to start a Debt Management Plan? How expensive are they?
First, find a credit counselor. Many are part of non-profit organizations so the fee they will charge you will be minimal. You may be able to find one for less than $50 per month. Some agencies may charge you as little as several dollars per month. The low cost credit counseling services receive funding from a variety of other sources, including foundation donations, contributions or donations from creditors, sale of education services, and their fees. This is what allows them to be more affordable options to consumers.
The next step in the process is your credit counselor will create and send a settlement proposal letter to each of your creditors. They will offer terms of the settlement and the plan, and request that they accept your Debt Management Plan (DMP)
All of your creditors will be provided with the following information about your situation.
- The reason that you are requesting and filing the Debt Management Plan (DMP)
- Information on your personal situation, including your name, address, total income, expenses, total debt, and financial condition.
- Details on all of your creditors, with the amount owed to each one.
- Detailed information on all financial obligations, such as your account number.
- Terms of the proposed repayment amount for each and every creditor, as well as exactly when the company can expect payment from you.
When will the Debt Management Plan be completed?
A successful debt management plan will usually take approximately 36-60 months to be concluded. The amount of your monthly payment is the key determinant. Another benefit of the plans is that if your income increases during the process, you may be able to repay your debt even earlier by increasing your monthly payment to your creditors.
Do all of my creditors need to be included?
Yes. One of the primary reasons that a debt management plan (DMP) is successful is because your creditors know that they will be treated both equitably and fairly. In almost all plans, all of your unsecured debts will be included. Some DMPS can even include payday loans. Or read more on payday loan laws.
What if one of my creditors does not accept the Debt Management Plan?
While this is rare, it is possible. Most creditors are more than happy to work and negotiate with you, and will agree to allow the customer to enter into a Debt Management Plan. Some may even show you how to get started. They do this because they know that they will be receiving payments from you with no further work or collection efforts required by them.
In the rare event that one of your creditors is unwilling to agree to the Debt Management Plan, then you still have options. You and your counselor can review the situation, and you may decide it is possible to make changes to your monthly budget to free up some extra cash to pay back those bills.
As a last resort, if one or more of your creditors does not agree to the plan, you may need to file bankruptcy under Chapter 13, as that may be the next best option. But this will usually be a last resort.
How do I 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.
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. 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 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 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 statements, notices, and records, 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 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. Find a listing of non-profit credit counseling agencies.
Another important tip to be successful is to never apply for additional credit or cards during the term of your DMP. 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.