What is a Debt Management Plan?
A Debt Management Plan (DMP) is a coordinated effort between you and a credit counseling agency to systematically pay down your unsecured debt through monthly deposits to your creditors. DMPs can be thought of as a helping hand. It is ideal for consumers who need help with budgeting and reducing debts but do not wish to pursue more drastic measures like debt settlement or bankruptcy.
How Does a Debt Management Plan Work?
Assessment of Your Financial Situation: A credit counselor reviews your entire financial situation, including income, debts, and living expenses, to ensure a DMP is the right choice for you. This includes determining which of your lines of credit are eligible for the plan. The service is generally limited to credit cards.
Creating a Personalized Budget: The credit counselor will help you establish a budget that allocates funds toward your DMP while still allowing you to cover living expenses and enjoy a quality life.
Negotiating with Creditors: Your counselor will negotiate with your creditors to potentially reduce interest rates and waive certain fees, which can lower your overall repayment amount.
Consolidating Payments: Instead of multiple debt payments, you make one consolidated monthly payment to the credit counseling agency, which then disburses payments to your creditors according to the agreed plan.
CALCULATING RISKS & BENEFITS Make an Informed Decision
Benefits of a Debt Management Program
Reduced Interest Rates: Most credit counseling agencies can negotiate lower interest rates on your behalf, decreasing the total amount you’ll pay over time.
Waiver of Late Fees: Creditors may also agree to waive late fees, further reducing your debt.
One Manageable Payment: Simplify your finances with one monthly payment rather than multiple creditor payments.
Avoid More Drastic Measures: Using a DMP can help you avoid the need for debt settlement or bankruptcy.
Risks of a Debt Management Program
Impact on Credit Availability: While enrolled in a DMP, your enrolled accounts will be closed, preventing using the line of credit.
Avoiding New Credit: You may also be asked to refrain from opening new credit accounts to focus on paying down existing debts.
Commitment to a Budget: A DMP requires adherence to a budget, which might be challenging but is crucial for success and long-term financial health.
Payments For the Duration of the Plan: DMPs can take several years to complete, and missed payments can jeopardize the plan benefits.
Ready to Take Control of How
You Manage Your Debt?
At Help With Debt, we’re committed to guiding you through your financial journey with customized solutions. Schedule a debt strategy session to learn more about how a Debt Management Plan can reduce your interest and payments, paving a a clear path to pay down your debts efficiently. Take control and reorganize your financial life today.