When you're unable to meet regular credit card payments along with daily expenses, debt management help is what you may need. Effective debt management plans can often help to lower monthly bills, remove late fees and penalties, and provide a way to work through your debts in a predictable time frame that meets your budget:
Video on Debt Management by Chris
What is a debt management plan?
A debt management plan (DMP) is offered by credit counseling or an online debt management company as a tool to assist you when budget tweaks are not enough to get you through a tough financial situation. Speaking with a credit counselor can help you determine how you can lower your monthly credit card payments (and other bills) through existing arrangements they have set up with your creditors. If a debt management program is a good fit for your goals and needs, you can enroll in the plan whether you are current with payments, or have fallen behind.
Here is an example of how a debt management plan can assist you:
Sally has 2 Credit Card, 1 Personal loan.
The interest rate on one credit card - 15%
The interest rate on the other credit card - 25%
The interest rate on the personal loan - 20%
So, the average interest rate is = (15% + 25% + 20%)/3 = 20%
The outstanding balance on the first credit card - $15,000
The outstanding balance on the second credit card - $12,000
The amount owed on personal loan - $13,000
So, the total debt amount is - $15,000 + $12,000 + $13,000 = $40,000
Unable to repay debts on her own, Sally enters into the debt management plan.
Sally combines the debts into a single monthly payment at interest rate of 8%.
The overall interest rate is reduced by - (20% - 12%) = 8%
If Sally's payments before the debt management plan were based on 3% of monthly balance and she were to make only minimum payments, she would be paying the $40,000.00 balance plus another roughly $49,000.00 of added interest. It could take 376 months for Sally to pay the total $89,000.00
In the debt management plan Sally has reduced her combined interest rates down to 8% and will be billed using a 2% of balance formula. Her payment will be $800.00 each month. She will have paid less than $10,000.00 in interest and will complete her debt repayment plan in about 60 months.
Debt Management Plans do provide significant payment relief and offer an accelerated strategy to be out of debt in a predictable and much more rapid time frame.^Top
What bills are included in a DMP?
Unsecured debts like medical bills, credit card bills, personal loans and department store credit are included in a debt management plan.
When do you need a DMP?
You should consider a debt management program or plan if you're in any of the situations as given below.
- You have multiple bills and cannot manage them efficiently.
- You've tried out a self repayment plan but it hasn't been effective.
- You're in financial crisis and need professional intervention to assist you.
- You want to stop getting collection calls.
- You want to lower the interest rate on your bills.
How DMP can help you?
A debt management plan or DMP can help you in the following ways:
- Interest rates and monthly payments are lowered..
- Late fees or over-the-limit fees are waived.
- You won't get harassing phone calls.
- A single monthly payment is required instead of multiple bills.
- Pay off debts in a predictable and shorter time frame
How do you find the right debt management company?
To find out the right debt management help company, you need to check the following:
- Company profile
- Service background
- Client testimonials
What happens in a DMP?
Check out the steps in a debt management plan.
- Analysis of your finances: The debt management company helps evaluate your current financial situation. It takes into account the interest rates on your bills, total amount you owe and the minimum payment on each account. The company will want to learn about your goals and help you to achieve them.
- Negotiation to lower interest rates: Once you enroll with a debt management services, the company works on your behalf to lower the interest rates and monthly payments to your creditors.
- Suitable repayment plan: The debt management company works out a repayment plan with your creditors so that you can pay back your balances. Managing debt this way in non confrontational and creates a predictable path to financial freedom.
- Single monthly payment: You'll make a single monthly payment to the company. The company then disburses the payment to your creditors.
What are the tips to a successful DMP?
There are 7 tips you need to follow when you manage debts with a debt management plan or program.
1. Accept a plan only if you can afford it: If a debt management company proposes a repayment plan which you can't afford to follow, it is likely your income and expenses are not a good fit for a DMP
2. Get everything in writing: Get the terms and conditions in writing. Verify the monthly fees and duration of the program before you sign the agreement.
3. Get the DMP approved by creditors: Once you enroll in a debt management plan with a credit counseling organization , make sure the proposed plan is approved by your creditors and that payments are being applied correctly by reviewing the normal monthly statements your creditors will continue to send you while on the plan.
4. Make regular payments: When you enroll in a debt management plan make your monthly payment on time. Missing a payment will cause you to lose the benefits of the plan.
5. Make sure the fees aren't high: Fees charged by credit counseling organizations for debt management programs are heavily regulated in virtually every state. Fees can range between zero and 50 dollars a month.
6. Keep track of your payments: Make sure the company doesn't send late payments to your creditors. Open all of your monthly statements and verify payments are made timely and the payments are being applied correctly.
Does an online debt management plan affect your credit?
When you're in a DMP, your credit report shows that you're making payments through a structured debt management program. However, FICO or Fair Isaac Corporation will not consider credit counseling or DMP while calculating your credit score. For more information on this, check out the debt management faq section.
With debt management advice and help, you can recover from debt problems and get on with your life. All you need to do is stick to a budget and keep making regular payments till you're debt free.^Top
How does non profit debt management help you?
A non profit debt management program helps you repay your outstanding balances at low cost. The companies offering non profit debt management programs charge a nominal fee for their services.
These nonprofit debt management companies function just like the for-profit management firms. A key difference is that the non profit companies usually don't pay taxes to the IRS and they receive financial help from the creditors whom they are paying on your behalf.
Benefits of non profit debt management program
Here are the key benefits of a nonprofit debt management program:
- Provides you with a free counseling session
- Helps you create a budget
- Creates a financial plan for repaying bills
- Have existing relationships with your creditors
- Lower your interest rate
- Waive late fees and penalties
- Helps to lower your monthly payments
- Re-age your accounts
- Reduces collection calls
- Non confrontational approach to debt relief