Debt Management Tips – A Helpful Guide

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If you’re having difficulty making ends meet because of high-interest debt payments, then you may need the benefits of a debt management plan. It can provide you with access to essential financial counseling and a customized payment plan that can get you free from your debt, while protecting your credit score and setting you on the right path to financial freedom.

What is a Debt Management Plan?

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A debt management plan (DMP) is a hardship program offered through either a credit counseling agency or another debt solutions provider. A DMP is geared towards consumers in need of debt relief who require more than simple budgeting to make significant headway on their debt. By taking advantage of the business relationships they have established with creditors, the debt counseling companies that offer DMP’s help reduce the consumer’s interest rates and eliminate fees while arranging for one consolidated monthly debt payment. As a result, consumers begin to see a realistic way forward and can ultimately achieve a more manageable repayment of the balances owed.

When is a Debt Management Plan Needed?

Consumers in these debt situations may need the assistance of a DMP:

• Overwhelmed by too many bills and due dates
• Excessively high interest rates and fees on debt
• Worried about possible credit score damage
• Self-directed plans to become debt-free have ended in failure
• Harassing collection phone calls are getting under your skin

How a Debt Management Plan Works

There are several steps necessary for a well-designed DMP:

1. Analyze your finances – A debt counselor will collect your relevant financial information and evaluate your current situation. These will include your income, expenses and the details related to your debt. They will assess the nature of your hardship and determine the best available options based on your unique circumstances.
2. Lower your interest rates – The debt management company will notify your creditors that you are working with them to pay off your debt and will obtain interest rate relief on your behalf. They will also pursue the elimination of over-limit and late fees, and are usually successful in bringing collection phone calls to a stop as well.
3. Structure a repayment plan – The debt management company will work out an appropriate repayment plan with your creditors that you will be able to afford, taking your financial hardship into account. The maximum program length will be 5 years or less, so you will become debt-free much more quickly than you would have been able to before.
4. Arrange a consolidated payment – All of your separate debt payments will be combined into one so that you will only need to make a single monthly payment to the debt management company. The company will then be responsible for disbursing this payment on time each month to each of your creditors. You will continue to receive monthly statements from your creditors, so you can track your progress and see for yourself how much faster your balances are shrinking.

Achieving Success with a Debt Management Plan

Here are some important points for you to consider regarding a DMP:

1. Obtain everything in writing. Deal only with a debt management company that will put all relevant aspects of the DMP in writing, and review the details to make sure everything is exactly how it was explained to you verbally.
2. Do some comparison shopping of the fees that the companies charge. Find out all the fees that are involved. You may find that the fees some debt management companies charge are excessive.
3. Accept a DMP you can afford. You should agree to a plan only if you feel confident that you’ll be able to make the required payments when they are due. If it sounds too expensive, check around with some other debt management companies to see if they can offer something more affordable.
4. Make your payments on time each month. Debt management plans do not tolerate late payments.
5. Review the monthly statements from your creditors. Verify that the debt management company is sending the correct payments on time. Notify the company if you’re being charged any fees you weren’t told about.
6. Obtain a written privacy policy from the debt management company. You will have to give them a good deal of personal information, so be sure to protect it.
7. Get the DMP approved by your creditors. Make sure that you receive notifications from each of your creditors that you’ve been approved for the debt management plan.
8. Save all the documentation and emails that you receive from both the debt management company and your creditors for future reference in case you may need to refer to them later.

Does a Debt Management Plan Affect Your Credit?

For each of your accounts in the DMP, notations will be made on your credit report that you’re making payments through a debt management company or credit counseling agency. According to Fair Isaac Corporation (FICO), however, the fact that you are in a DMP will not have an effect on your credit score.

To determine if a debt management plan is appropriate for you, fill out the online form on the right and a debt advisor will get in touch with you and answer all your questions.

Related posts:

1. 3 Step Guide for Debt Reduction
2. Benefits of Debt Management Over Debt Settlement