Debt management: Repay debt without hurting your credit

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Repay debt without hurting your credit

by Chrys

Watch Video: How debt management helps you manage bills in 11 steps

  • 01 Calculate your total debt
  • 02 Try for a repayment plan
  • 03 Try debt management
  • 04 Go for free counseling
  • 05 Get enrolled
  • 06 Get lower rates
  • 07 Obtain an affordable plan
  • 08 Get your plan approved
  • 09 Make one monthly payment
  • 10 Track your payments
  • 11 Get out of debt

A debt management plan or program (DMP) is a process through which you can repay your debts at a lower interest rate. With the help of this plan, you can become debt free within 3-5 years.

Can you get online debt management help?

Yes. Online debt management help is available. However, make sure you read online reviews and check the credentials before you approach a debt management company.

When and Why of Debt management plan

When you should go for a DMP

  • You earn a decent amount every month
  • You can pay a certain amount every month
  • You want to repay your outstanding dues in full
  • You can repay debts in full if interest rate is reduced
  • You can change your lifestyle to follow your budget
  • You are facing problems in managing your multiple bills
  • You want to improve your credit score
  • You can pay professional fees to the debt management company

Why you can take help of a DMP

  • You can have positive impact on your credit report
  • You can have a stress-free life to enjoy
  • You'll get an affordable monthly payment plan
  • You can start working on rebuilding your credit
  • You can save money when you become debt free
  • You'll get fewer calls from creditors regarding payment
  • Late fees or over-the-limit fees are waived
  • A single monthly payment is required instead of multiple bills
  • Pay off debts in a predictable and shorter time frame

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.

DMP - How does it help you get a total money makeover?

You can get a complete money makeover through debt management help. Here's how a debt management company can help you:

Contact your creditors & request for interest rate reduction

The debt management company will contact your creditors and ask for a reduction in interest rate. It'll become easier for you to repay debts.

Disburse the amount amongst your creditors

Once you make the payment to the company, it will distribute the amount amongst your creditors as per the agreement.

Offer tips to manage personal finance

The counseling agency or debt management company will offer a free counseling session. Through it, the counselor will provide you with suitable tips to manage the financial situation and repay debts.

Offer a debt management program

The company will offer a DMP if you cannot manage money all by yourself.
  • Plan a suitable budget to follow: The counselor will provide you with an appropriate budget following which you can save money.
  • Decide upon a monthly payment: The counselor will also decide upon an affordable amount, which you need to pay to the company, every month.

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

How much
debt consolidation
can save you

What are the 5 questions you need to ask a company?

If the debt management company you're working with is unable to solve your financial problems, then your credit score will drop, Apart from that, you'll lose money more than any other company doing precisely the similar thing.

So, it is very important to ask the right questions before signing a written agreement with the company.

  1. How much will you've to pay for a fee?
  2. How much will you've to pay for the monthly payments?
  3. Will the counselors be able to cut down the interest rates?
  4. What will happen if the monthly payment amount is too high for you?
  5. How'll you know that creditors have received money?

You may have a look at the debt management faq section to know about the other questions.

Steps to choose a debt management program

1

Try to manage your multiple bills yourself

Plan a budget, cut down unnecessary expenses, and use the money to repay your debts.
2

Search for a reliable credit counseling agency

If you can't manage your accounts on your own, you can take help of a credit counseling agency. Search for a licensed credit counseling agency in your state.
3

Take help of a credit counselor

Follow the budgeting tips to save money and repay debts, offered by the counselor.
4

The agency can provide a DMP

If you can't manage your finances on your own even after following the budgeting tips, the counseling agency can offer you a debt management program.
5

Know the time to repay debts in full

Before you enroll, ask how many months it'll take to repay the outstanding balance in the multiple bills.
6

Ask how much you need to pay monthly

Make sure you can comfortably make the agreed upon monthly payment to the debt management company.
7

Find out how payments will be disbursed to creditors

Ask on which date, payments will be disbursed to the creditors, so that you can track payments. You should get monthly statements with payment details.
8

Know about the fees you need to pay

Ask how much you need to pay as professional fees for the debt management plan.
9

Know how personal information will be protected

You should take help from a reliable organization so that your personal and financial information remain secure.
10

Get everything written in details

Before you enroll in the plan, make sure you get everything written down and go through it carefully.
11

Sign up if you think it’ll serve your purpose

You should enroll in the plan only if it suits you. You should be able to make the required monthly payment.

Do's and don't's of debt management

Do's

  • Check your credit reports at regular intervals
  • Make the payments to the company every month
  • Follow the budget planned by the debt counselor
  • Notify your counselor if there’s a change in your financial state

Don't's

  • Use credit cards till you repay the debts completely
  • Spend more since interest rates on bills are reduced
  • Enroll with a company without checking its credentials
  • Start making payments before you get a written agreement

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. 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. 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. 3

    Get the DMP approved by creditors:

    Once you enroll in a debt management plan with a credit counseling agency, 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. 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. 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. 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.
  7. 7

    Protect your personal information:

    Make it a point to get a written privacy policy from the debt management company. When you seek debt management advice and help, you have to provide some personal information. Make sure that your personal information is not revealed to others.

How much can I save through a credit counseling agency's debt management plan?

Debt management plans doesn't promise a fixed amount that one can save. It totally depends on personal situations. In general, an average client's credit card interest rates were reduced from an average of 24%-10%, saving them approximately $186 in interest every month in the first year of their enrollment. This will give you a free state of mind and you will be able to save again.

Opting for a DMP - You can get financing after it’s completed

Your accounts that are accepted into the program will be closed and this will have a slight impact on your score.

While enrolled in the program, it is typically very tough to get financing of virtually any nature in the first 24 months, due to the DMP notation in your credit report, next to each of the accounts enrolled.

Debt Management Programs runs, on average, for about 3-5 years.Read more...
You are basically in "unsecured credit purgatory" for this entire period (such as obtaining new credit cards).

You may be able to get financing on a vehicle or even purchase a home, modify an existing home loan, or qualify for a student loan (either your own or parental) after the first 2-3 years of successful participation in your DMP.

When an account in your DMP is fully paid, the DMP notation is removed.

This is a good option, if the math supports your finances (more on the math in a moment).
Michael Bovee
Industry Expert
Michael Bovee

Last Updated on: Tue, 27 Oct 2020