Debt management program (DMP) to manage your debts
What is it?
Debt management program is a process where a
credit counseling agency/law firm helps you in managing your debts with a reduced APR. In a DMP you have to make a monthly payment to the agency. The agency in return manages your debts by distributing the money among the
creditors in an optimized way.
When to go for debt management Program?
- If the debt is distributed across different creditors and thus making it very difficult for you to manage it efficiently. Also you want to avoid the harassing creditor calls.
- If the debt is too high to manage it through self repayment.
- Even with a high debt you don’t want your credit score to suffer.
- Even when there are financial problems you want to pay off all your debts.
- You just want a small help for repaying your debt (decreasing the interest rate of various debts).
Step by Step process:
The debt management plan follows a series of steps:
- Firstly the credit counseling agency compiles a list of all the creditors and the respective debt, minimum required payment, APR etc. Also they will help you in finding the income available for debt payment using a budget analysis. After the analysis it will suggest you the right course of action for your debt.
- The firm will then be authorized by you to deal on your behalf with the creditors.
- The firm will negotiate with the creditors for a lower APR. Also it will stop the calls from creditors as they will be then dealing with the firm directly.
- After negotiating with all the creditors a feasible payment schedule is planned.
- You then make a single monthly payment, which is then disbursed to your creditors.
Advantages of this program
- Lower monthly payment due to reduced interest rates.
- Waived late fees or over limit fees.
- End annoying phone calls from creditors.
- A single monthly payment for all your bills.
- Very credit score friendly approach. No late payments will appear on your credit report as the monthly payments are timely managed by the firm. Timely payments will help improve your score.
Does this program cover all the debts?
A DMP covers all your unsecured debts like credit card bills, medical bills, payday loans, student loans etc. Some program may not include student loans and payday loans.
Will debt management affect my credit rating?
No it will not. If you are planning for a DMP, it is likely that your credit report has already been marred. When you enroll for a DMP, a comment stating that you're paying your debts through a credit-counseling agency appears on your report and stays until the debt is paid in full. However, Fair Isaac Corp. (FICO)
does not take account of any such credit-counseling information while calculating a consumer's credit score. Though it doesn't effect your credit score directly but some lenders may consider the entry on the credit report and making it
difficult to qualify for new credit.
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