What is a Debt Management Plan?

You can’t let your debt go another day without doing something, anything, to put it behind you. The good news is that you do have options, including debt management. The financial strategy is popular among those who are having problems keeping up with their debts but who have money left over after paying living expenses. But you may be wondering, exactly what is a debt management plan (DMP)? Read on.

Debt Management

This is a debt repayment method that employs budgeting and financial planning to ultimately get your unsecured debt cleared. The strategy, which is typically facilitated by a certified credit counselor, is also utilized to help you manage any new, post-DMP debt such as that from personal loans or credit cards.

Who is the Strategy For?

As we say, debt management candidates have trouble managing their debt load but are still taking care of day-to-day expenditures. They also can’t foresee themselves paying the whole amount due.

Explain the Debt Management Process

You’ll typically have a counseling session that will last a half-hour or so. At length, the counselor will help you craft a budget, learn how to better manage money, and figure out how much you can pay your creditors monthly. Regarding the latter, the counselor will help you establish a plan to pay off your debts in three to five years and will negotiate said plan with the companies you owe.

While you’re going through debt management, the last thing you want to do is incur new debt. Therefore, you’ll likely have to close each card once it’s paid off. And note that should you miss a payment you will have to leave the program.

How Much is Debt Management?

Most services are complimentary, but some will charge a nominal fee that’s usually folded into the amount you pay toward debts.

What are Some of the Advantages of Debt Management Enrollment?

  • No loan necessary. A key feature of debt management is that it’s essential debt consolidation – but without the need for a loan.
  • It offers structure. A debt management plan keeps you organized, which will help you be on time, every time, with your payments.
  • Improved rate. A debt management plan may qualify you for a lower interest rate and payment.
  • Gets your spending under control. You must create and stay with a budget that’s realistic, which means one that you can handle. This helps create good spending habits.
  • Helps improve your credit. If your payments are on time and consistent, your credit scores will improve over time. If you find that you can’t make the payments, or your overall debt situation is untenable, then perhaps you should check out for debt settlement.
  • Keeps collectors away. Because you are making those consistent payments on time, debt collectors will take note and leave you alone.

What are Some Drawbacks to Debt Management?

  • Possible scams. There are folks out there who are more interested in taking your cash than helping you. Check with the Better Business Bureau, your state’s attorney general, and your area’s consumer protection agency to see if the agency in which you’re interested is legitimate, and whether there have been consumer complaints.
  • Credit report notation. While enrollment in a debt management plan does not itself damage your credit, such enrollment will be cited on your credit reports for any prospective creditor to see.
  • Forbearance is required. Debt repayment can take up to five years, so you must be patient
  • Credit restrictions. A debt repayment plan requires you to cease using any plastic, and you won’t be able to apply for more credit.
  • Steady income required. If you do not have sufficient, consistent income, and you miss payments, you will be bounced from the program.

Ultimately, you must size up the prospect of a debt management plan against your financial situation and long-term needs. This will help you see whether the strategy is right for you. If your situation is more dire, another option is debt settlement, with which Freedom Debt Relief can help.

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