In the quest of living a luxurious lifestyle and fulfilling our dreams, we often resort to applying for loans and credit cards with high interests. In such scenarios, we end up taking out loans from several lenders, overlooking the fact that these are debts that need to be paid off timely. With so many lenders to pay with a limited income, it becomes extremely challenging to cope with debt payments. Skipping debt payments then, eventually leads to late fees and penalties, and we find ourselves in deep water – burdened with massive debt which is hard to pay off.
If you are in a similar situation, then that is worrisome for sure, but the good news is that there are plenty of ways to overcome your stressful financial situation and eventually become debt-free. And one such way is a Debt Management Plan (DMP).
Debt Management Plan
DMP is basically a type of debt relief program or a service. It is a formal agreement between a creditor and a debtor that highlights and addresses the terms of an outstanding debt. This plan is designed to help lower outstanding/unsecured debts with time, thereby, making it easier for the debtor to pay off debt and regain control of their finances.
The process aims to secure lower interest rates with a longer repayment period which reduces the burden of big debt payments from the shoulders of the debtor. Generally, with the help of DMP, a debtor becomes debt free within 3 to 5 years.
Who Should Opt For A Debt Management Plan?
This plan is ideal for those who:
- Have a decent amount of monthly income
- Can pay a certain amount of debt payment every month
- Are facing problems in paying off and managing credit card and medical bills
- Can pay professional fees to a DMC (Debt Management Company)
- Want to repay their outstanding dues in full
- Are willing to change their lifestyle according to their budget and income
Debt Management Plan – How does it Work?
A debt management plan involves a certified credit counselor who creates a proper money management plan for you and a realistic budget to help you handle your finances in a much better way. Simply put, the credit counselor works out a bill paying arrangement with your creditor, based on your regular income and expenditures. The counselor tries to lower your interest rate on your current debt by negotiating with the creditor to ensure you are able to pay off your dues each month in a timely manner.
Unlike debt settlement and consolidation, a debt management plan helps you strategically make regular payments per month towards your debt accounts. In this plan, no new loan is taken out.
By opting for a debt management plan, you make monthly payments to the credit counselor, which in turn, are then disbursed automatically to your creditors in the agreed upon amounts. Using strategic budgeting methods, you are then able to pay off to your creditors each month on time, so that you don’t have to worry about late or missed debt payments.
Pros and Cons of a Debt Management Plan
Here are the advantages of seeking a debt management plan:
- It is not a loan
- A reliable and a safe way out
- Helps reduce interest rate and waive late fees and additional charges
- Saves time and money
- Helps get you back on track and enjoy financial freedom
- Assists to pay off debts timely
- improves your credit rating during the course of the program
However, this plan may not be suitable for everyone. The downsides of opting for a debt management plan are:
- It will not work or be as effective if you can’t make regular monthly payments.
- If you miss on your payment or make a late payment, the creditor has the right to remove you from the program.
- This program is designed to offer affordable monthly payment terms/schedule that lasts no more than 5 years. If you have a lot of debt, even with lowered interest rate, you won’t be able to repay your total debt within 60 months. Therefore, this program may not be of great use to you.
- Finding a reliable credit counselor is difficult. Some credit counselors may charge you high fees and not even disclose their full monthly payments, giving you unpleasant surprises during the process.
Therefore, when seeking a debt management plan, make sure you work with a reliable and a reputable credit counselor who works in your best interest and provides you quality guidance and assistance in resolving your debt problems.
Tips to Maximize the Benefits of a Debt Management Plan
Once you find a reliable credit counseling agency to work with, use the following tips to optimize the DMP service to your advantage:
- Make the payments to your credit counselor timely each month.
- Always follow the budget plan provided to you by your counselor as this will help keep you on track and manage your finances without burdening yourself with more debt.
- Make sure you check your credit reports after regular intervals.
- Notify your counselor if there are any incorrect entries in your credit report or changes in your financial state.
For more information or assistance with debt management plans, get in touch with us today. We have a team of experienced and professional counselors who can provide you with the best debt relief plan and quality guidance on regaining your financial independence.