- What is Debt Management Plan?
- Debt Management Plan - How it works?
- What should be kept in mind before enrolling with a DMP?
What is Debt Management Plan?
Simply put, a debt management plans helps you to manage your debts, and that includes all your outstanding dues, bills and loans. It mostly helps to eliminate the unsecured debts though, and doesnâ€™t work on the secured ones. If youâ€™re struggling with your debt payments, a Debt Management Plan or DMP can be the right choice for you. It is an arrangement with a third party, who acts on your behalf and shows you the way by which you can pay off your debts, instead of being overwhelmed by it.
Debt Management Plan - How it works?
Well, you canâ€™t expect all your debts to go away in an instant with a debt management plan. A DMP helps you get rid of your debts gradually through planned payments. A DMP follows some simple steps as elaborated below:
- Counselingâ€“ Once you enroll into a DMP, the credit counselors associated with the organization will start off with a thorough review of your financial condition. Theyâ€™ll take note of your gross income, expenditure and savings along with details of the outstanding accounts and your lines of credit. Counseling is a significant part of a DMP since it helps the counselors to understand your financial state and assist them in future planning.
- Negotiation â€“ The counselors associated with the company then try to negotiate with your creditors. The negotiation is vital since it helps to trim down the interest rates, which are being charged on your debts. Effective negotiation can eliminate the penalties, extra charges, over-limit and late fees that you may have accrued.
- Planning â€“ Planning is of the utmost importance in a DMP. After the assessment of your financial competence and possible debt reduction, the counselors draw out a payment plan for you. The customized payment plan makes sure you have to pay only once every month for the debts. However, the repayment period may be stretched out, so that you can pay your debts off comfortably.
- Payment â€“ You will need to forward the single affordable monthly payments to the organization, which will then be reimbursed to your creditors. Over a specific time period, all your debts will be paid off. However, youâ€™ll need to be regular with the DMP payments to get rid off your outstanding dues in time.
What should be kept in mind before enrolling with a DMP?
Before you sign up with a Debt Management Plan, you must ensure that the company is legitimate as well as efficient enough to help you out of your debt mess. The following points should be considered to make sure you donâ€™t place your trust and financial details into the wrong hands:
- Donâ€™t place your trust with a company that charges you large upfront fees.
- Make sure that the agency is an accredited non-profit credit-counseling agency.
- Find out whether the counselors offering you debt help are certified to do so.
- Find out detailed information about the services that the agency offers. Enquire about the company with the company staffs itself. If they deny you, or charge you fees for that or even enquire about your personal and financial details beforehand, refrain from enrolling with them.
- A legitimate credit counseling agency should provide other services as well, like budgeting advice or money management skills apart from a DMP. Before enrolling into a DMP, enquire whether the counselors will help you with further assistance related to your money matters.
- Ask for the fees charged and when youâ€™ll have to pay for the services. Look out for the hidden clauses or donations, since many of the agencies try to hide their fees in that way.
- Donâ€™t forward any payment before the creditors accept the plan. Enroll with a DMP only if you feel that the payment plan is within your means, and request for detailed account information per month before enrolling.
- Get everything in writing and donâ€™t believe in verbal promises. Enroll in a program only after youâ€™re totally sure that the agency is authentic and legitimate.
As it has been mentioned earlier, a debt management plan will not have instant results. Nevertheless, an effective DMP can help you to manage your debts, reduce them and eliminate them over time. At least, that is better than filing for a bankruptcy.