In order to get the management plan in USA you shall turn to credit counseling or any of the online debt management companies. They offer it as the best tool to get you through the difficulties of your budget. The interaction with the credit counselor can help you to arrange your budget in a way that will help you to lower your monthly credit payments; while the debt management program can help you fit into your income.
When is the right time to enroll the debt management program?
- You have several delinquent accounts;
- Several credit cards have reached their max limit;
- About 20% of your monthly payments are the minimum limit of your credit cards;
- You pay your bills with cash advances in payday loans.
The credit counseling agency can help you to deal with most of the outstanding debts through the help of debt management plan. Let’s see how exactly it works.
Imagine you’ve got 2 credit cards with interest rates of 15% and 25%. The average interest rate appears to be 20%. The outstanding balances are $15.000 for the first card and $12.000 for the second one. The total amount is $27.000 and is unbearable to pay.
After combining the debts of two cards into one debt with 9% interest rate you will only have to pay $8.000 interest, which means paying $900 for 40 months.
What’s special about the debt management plan?
Before enrolling the program people are interested in simple questions: What is a debt management plan? How will it help me?
The DMP (a.k.a. Debt Management Plan) is the agreement between the creditor and the debtor.
With the help of the given plan the people get the opportunity to regain control over their finances and pay off the debts in lesser amount.
The specific of the unsecured debt is that it cannot be backed by the collateral. These are the credit cards, medical bills, student loans etc. On the other hand the mortgage is considered to be the secured debt and will not be qualified as DMP.
What is debt management program?
Becoming the part of the DMP, people make the fixed deposits each month to the credit counseling organizations. The payments are made from the fixed account on the accounts of creditors. The payments are carefully calculated and never push the debtor over the financial limit.
After the amount of free money is fixed as what is remained of the income after paying the monthly bills, it can be divided between the creditors. Do not think that DMP is the debt settlement, since it’s not.
The following differences exist:
- The debtor is making payments directly to the creditor, not through the third party;
- The object of negotiation is monthly payments, not the amount the debtor owes.
The debt plan can be offered by the authorized company only.
What is good about DMP?
The first and main recommendation given by the Better Business Bureau and consumer advocates to anyone who considers the debt settlement in USA is to use the debt management plan. It’s the great opportunity to reach the financial stability without reducing to more strict measures. It can also go along with the dent settlement.
Here are the main pros of DMP:
- When the plan is arranged, the creditors see the schedule of your payments and appreciate this guarantee by lowering the interest rate and waiving the charges;
- The monthly budget gets affordable and realistic;
- The calls from creditors and collectors usually stop;
- After paying off the DMP, you have a great chance to reestablish your credit history.
Still want to know what is the debt management plan?
According to the words of critics, the credit counseling is not panacea for every debtor. There’s nothing it can do for those with unmanageable debts. Only every second person actually completes the program.
Remember before enrolling the DMP:
- The term is from 36 to 60 months to pay off the debt according to DMP;
- You may be restricted of using any additional credit cards in order to stabilize your debt;
- If you miss the payment or pay late, not only the progress on debt decreasing will be lost, but also the renegotiation for lower fees will be rather difficult;
- Some organizations might charge high fees for enrolling the DMP.
How to avoid the DMP Pitfall
Before enrolling into the program take your time to investigate the chosen company. It’s very important since you will entrust your debt and your money into the hands of its managers.
First of all see if the company is accredited. The Federal Trade Commission (FTD) advices to turn to the organization to deal with credit and debt management. They know exactly how to cope with the practical budget.
It is also important to turn to the consumer protection agency to get more information. If the agency is licensed and obtains no complains in the records of Better Business Bureau and state Attorney General’s office, the company is reliable.
Do not get lured into the trap of the “credit repair” company promising to fix credit histories for a small fee. You do have the right to remove the inaccurate information from your credit file without any assistance.
To find out the most effective debt management plan, check out the offered services and their costs. Never rely on the verbal promises as it’s the part of advertisement. Only the written promises are guaranteed.