A debt management plan (DMP) will enable you to pay off your debt conveniently and in order to make the best use of a DMP, you must clearly understand the process and intricacies of a debt management plan.
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What is a debt management plan?
A debt management plan/program is an arrangement wherein a third party (a debt management/counseling agency) helps the debtor with repayment of his/her “unsecured” debts, such as credit card bills, student loans, medical bills etc. In a debt management plan, the credit counseling agency or a debt management company will negotiate various repayment terms with your creditors and come up with a solution that is favorable for you and acceptable to your creditors.
As an outcome, you get better repayment terms (including better interest rates, waiving off of charges, smaller monthly payments etc) and you are required to deposit a specified amount of money on a monthly basis with a credit counseling agency who makes the required monthly payments as per the debt management plan.
Thus, debt management plan can help you in negotiating lower interest rates, getting your late fees removed, even dropping the principal amount and consolidating your monthly payments. However, one needs to be vigilant while choosing a debt management program as they can be unreliable, uneconomical or simply fraudulent.
Why do creditors accept a debt management plan?
Instead of risking all the money you owe (in case you file for bankruptcy), the creditors often agree to compromise. By doing this they are sure that they will get back some part of their money, if not all.
Managing your debts
1. Take lead: Start with your own effort. Plan a budget, avoid unnecessary expenses and prioritize your debts. In fact, you could prepare your own debt management plan in this way. The key is to spend only on stuff that is absolutely essential and save the rest for paying back your debts.
2. Credit counseling: A credit counselor will enable you to assess your financial situation accurately, taking into account your assets and liabilities. The next step will be to provide you with debt management options so that you can get your finances under control and pay off your debts. Credit counseling agencies are monitored and you must choose only an approved agency. You need to ensure that the agency you have approached is licensed to work in your state. You can also approach a non-profit agency after verifying their status.
3. Be aware: The organizations can confuse you with various terms such as debt consolidation, debt management and debt negotiation. You have to be clear about what is being offered. Regardless of what a debt management program is labeled as, find out what it is.
4. Avoid high fees: Whatever fees the agency asks for, make sure you know what all it covers. Don’t get trapped into paying a “consultation fee”, an “application fee” and an “enrolment fee”. You can always look out for other agencies that can waive your fee.
5. Ensure privacy: Find out how the organization will safeguard your personal information, as you will be sharing a lot of confidential information with them about your finances, and other related information. This makes it even more important to choose a trust-worthy and legitimate organization.
6. Written contract: You should accept a debt management plan only if it fulfils all your requirements and satisfies you. Make sure all the verbal commitments are written down, in order to avoid future problems.
7. Assure timeliness: Once you have accepted the debt management plan and have started making payments to the agency (so that they can reroute them to your creditors), make sure that the payments are made on time by the agency. The agency should send you a copy of the statement each month. You should know that untimely or delayed payments can make you lose the progress you’ve made on paying your debt, or the benefits of a debt management program.
Debt management counselors can also inform you about your legal rights and help you with some legal matters. A good debt management professional may be able to help you file a complaint against any kind of threats or harassments. For further help, you can refer to this link: https://consumer.ftc.gov/articles/coping-debt
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