Debt Management Plan: Advantages and Disadvantages

Are you currently struggling to find a solution to an overwhelming debt problem? Have you been wondering if a debt management plan will be right for you? Learn more about a debt management plan, and find out whether it is right for you.

WHAT IS A DEBT MANAGEMENT PLAN?

A debt management plan, or DMP, is a debt relief option that allows you to pay off their debts at a rate you can manage and afford. A DMP service is typically provided by credit advisors or a credit counseling agency. If you are considering this type of debt relief, it is important to find a reputable and trusted credit counseling service .

A credit counselor will help you thoroughly review your financial situation and discuss further debt relief options. Once it is determined that a debt management plan is the best action to take, the credit counseling agency will negotiate with your creditors to see if they can reduce your monthly payments or interest rates, and waive or reduce any fees or penalties.

Both parties will then agree upon a simplified payment plan which you will be obliged to follow to pay off your debt. Typically, the payment plan will allow you three to five years to resolve your debt.

THE ADVANTAGES OF DEBT MANAGEMENT

A debt management plan can offer the following benefits:

• Achieve a more manageable payment plan
• Consolidate multiple debts without the need for another loan
• Freeze interest payments, reduce fees, and decrease monthly payments
• Stop intimidating phone calls and letters from collection agencies
• Get rid of debt
• Improve credit score over time

THE DISADVANTAGES OF DEBT MANAGEMENT

A debt management plan also comes with inherent risks and disadvantages:

• A DMP is typically an informal agreement, which means your creditors can change their mind at any time.
• DMPs may increase the length of time for debt repayment
• A DMP may also increase the amount owed and paid over time
• DMPs can negatively impact your credit score
• There is no guarantee of avoiding wage garnishment

IMPORTANT THINGS TO KNOW ABOUT DMPS

Here are some important things to consider about a Debt Management Plan:

•  A DMP may help you pay off most unsecured debts such as credit cards, medical bills, personal loans, and payday loans
• A DMP won’t cover secured debts and other complex debts including court fines, child support, auto loans, mortgage loans, and home equity loan
• Always check if your DMP provider is authorized and certified. Credit counseling services will perform counseling sessions at no cost. Typically, there will be a one-time enrollment plan and minimal monthly fee for the cost of administering your debt management plan
• In most cases, you will be required to close all credit card accounts (sometimes you may be allowed to use only one card in case of emergency) while enrolled in a DMP

 If you're overwhelmed with debt, look into a Debt Management Plan. This solution can provide debt relief, making it easier for you to manage your finances and pay off debt.

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