Certain types of loans, as in a mortgage, can be a stepping stone toward making wealth & financial health. Well, a high amount of debt can leave you in a stressful situation without providing any reliable way toward financial freedom.
Credit counseling organizations offer different DMPs as a reliable and trustworthy way for people who are strongly struggling with unsecured loans, like credit card debt. And, by getting on a Debt Management Plan, you might be able to reduce your monthly payments & interests, enabling you to pay back your debts & avoid the negative influence of declaring or defaulting bankruptcy.
Well, wondering is it worth going with DMP? Let’s check out the undermentioned section to determine how the process actually works & what are its major benefits & drawbacks.
Debt Management Plan- What It Is?
DMP is one kind of payment plan that’s set up & controlled by the credit counseling company. Credit counseling organizations are nonprofit firms that provide training as well as support to help other people better handle their finances.
And when you deal with a reliable and trustworthy credit counseling company, you will meet with a counselor who will check out your entire financial situation & help you discover the most feasible options. And, if a Debt Management Plan is a good fit, the advisor can negotiate with your lenders on your behalf for making the most feasible payment plans.
And, as part of the negotiation, lenders might waive charges & decrease the interests on your accounts if you conform to pay back the debt via the Debt Management Plan. With different DMPs, the real goal is to have your debts completely repaid within 3 to 5 years, which is pretty simple and straightforward to do when low interest accrues every month.
When you start the DMP, you will make a single payment to the counseling firm, which will then distribute to the lender. The company might charge a small charge for their service, however, the interest savings can be more than the cover value.
Debt Management Plans can be only appropriate on accounts that are not backed by collateral, like credit cards. And while you might be able to select which accounts you desire to incorporate in your Debt Management Plan, you are required to close all the credit cards that are part of your DMP!
PROS of a Debt Management Plan
Debtors who are struggling with their monthly payments might find a Debt Management Plan that offers a sense of relief & a workable solution. Especially, if you are feeling overwhelmed or you are making payments & the balance never looks to decrease, a Debt Management Plan can put you on a way to paying off your debts.
The principal advantages of working with an advisor & getting on a Debt Management Plan include:
- Professional advice: You will begin with a financial advisor session where an advisor will go over your debts, budget, goals & options in order to help you understand the best course of action. In fact, if you do not go with Debt Management, you might find this initial (often free) session useful.
- Waived fees and lower payments: The advisor can work with your lender to waive previously charged fees & lower your payments, assisting you to pay back your debts more speedily & free up room in your budget for other required expenses.
- Debt deleted sooner: The advisor might also be able to negotiate cheaper interests on your debts, which means a greater part of your payment directly goes toward the principal balance, & you will be out of debt quickly.
- One monthly payment: You get one monthly statement & send one payment to the counseling firm. This can be pretty simple & straightforward to manage than juggling bills from different creditors.
- Accounts brought current: Well, if you have fallen behind on monthly payments, you may not be able to pay your whole past-due payment. And as part of a Debt Management Plan, your lender might agree to “re-age” your account & help you to update your account, saving you on late payments, after making multiple on-time payments via the Debt Management Plan.
- Fewer calls: If you are able to cover past-due accounts, the creditors & collection firms will stop calling. However, this can take multiple months for calls to stop, since it takes time for all the documentation & processing in order to get worked out.
- A reliable plan with accountability: You can always make the lowest payments on credit cards & be stuck with the same debt for several years. However, with a Debt Management Plan, you will have a great strategy for repaying the debt & a credit advisor who will keep you accountable too.
- Moreover, your credit advisor might be able to offer referrals as well as support to help you handle other factors of your finances. For instance, the majority of the firms offer budgeting, student loan, property buying, and have well-trained advisors who can help the people struggling to pay back their monthly payments!
CONS of a Debt Management Plan
There are also possible drawbacks for getting on a Debt Management Plan rather than different kinds of repayment plans or debt consolidation.
- It won’t cover every debt. DMPS won’t cover the secured debts & certain unsecured loans, as in student loans. The advisor might give you some suggestions, however, you will be required to handle those monthly payments on your own.
- There are certain charges. You might require to pay a first setup charge & a monthly charge to join in a DMP. The charges can differ depending on the counseling firm & state laws, & your financial condition might qualify you for accommodations or waivers.
- Less access to credit. You will need to close all credit cards that you incorporate in the Debt Management Plan, which will decline your access to credit throughout the month. Your lenders might also verify your credit statements & force you to stop using credit cards that are not part of the Debt Management Plan while you are participating in the plan.
- During the primary sitting, the advisor can aid you to determine your financial condition & decide which opportunities can be the best suited for you. At times, debt consolidation might make more sense. However, getting a debt consolidation loan with a poor credit score might be pretty challenging.
That’s all! These are the major aspects that you should be aware of before you join a Debt Management Plan! Well, if you have a further query regarding “How to apply to a DMP”, then stay tuned with us!