5 Things You Must Know About Debt Management Plans

Debt can be overwhelming, especially when it spirals out of control. It is always hard to the point you would think you will never dig yourself out of it. However, you can always consult with credit counseling agencies about their debt management plans.

Debt management plans, DMP is a formal agreement between you and your creditors to pay all your debts, within 3-5 years. It is often used only when you are in a position to pay all your creditors small amounts every month.

It is also useful when you have debts and can only make repayments within a few months. Either, way you can come into agreement with your creditors or hire a professional debt management company to do it.

Nonetheless, as much as you can seek professional help you have to consider if it is necessary. This is because some of these agencies are known to do a shoddy job when it comes to debt management.

Therefore, you need to do your own research on some of these debt management companies, in order to hire a reputable one. You may check this link out for more debt management info.

As for now, here is what you need to know about debt management plans, before embarking on its journey.

1. It Is Not the Same as Debt Settlement

A debt management plan is often offered by credit counseling agencies if you have trouble clearing your debt. Its main purpose is to help you pay all the debt owed. It is not the same as debt settlement, whereby you pay less than you actually owe.

With a debt management plan, no balance will be reduced. You will pay all that you lent from your creditor nothing more, nothing less.

However, if you opt to use it, you creditor can at times waiver or reduce finance charges, in a bid to help you make the payments quickly. This means that your payment will go to the balance and not the actual charges if you are lucky enough.

Some of the debts you can include in a debt management plan included but are not limited to medical debt, credit card debt and bank overdraft balance. However, you cannot include student loans, tax bills or child support on it.

2. It Can Have a Negative Impact

A debt management plan can have a negative effect on your credit, as creditors often report that you are participating in the program and not making your payments as agreed.

In relation, some creditors might hesitate when it comes to lending you money since it shows on your report that you have been struggling with your finances. Even some potential property owners might not consider you for an apartment due to such reports.

3. It Is a Third Party Payment System

This is probably one of the best reasons to participate in a debt management plan that is if you have several debts you need to pay.

You can stop with the worrying and juggling of several creditors, wondering who to pay first and who to keep waiting. This process can be frustrating, both mentally and physically.

However, you can solve your problem by making one payment to a credit-counseling agency. This way they make the transfers to your creditors.

4. It Is Not Right for Everyone

You will have to do your research in relation to the types of debts you have, to ensure that your debts can be covered by debt management plans.

This plan often works for unsecured debts like credit and charge cards, as well as personal loans and at times collection accounts. It cannot help you with child support, tax debt, or old parking tickets.

Moreover, you have to be very confident that you can make the monthly payments for years to come, 3-5 years and not just for a few months.

Besides, to qualify you need to be a bit broke, with little cash for essential expenses. If you happen to have, too much left over cash then you are better off managing your debt solo.

5. No More Charging Until You Are Done

When you enter into a debt management plan, you will have to close your credit card accounts. You will not even get new ones until you are done with your debts. This can be hard for some, especially those who are used to credit cards.

However, you are always allowed to leave one card for emergencies. It is mostly a general-purpose account with low to zero balance, that you cannot use anywhere.

Besides, it does not make sense to be charging while repaying your debt, so the closing of the accounts is justifiable.

Conclusion

In conclusion, you need to do your own research in relation to your debts to see if you are fit for debt management plans. Otherwise, it is not that bad, you just have to know what you are getting yourself into.

Previous Story
Next Story

You Might Also Like

Shares