If you are struggling to make the monthly payments, then you might find the debt management program is the best option for you. Before applying for the debt management program make sure that you know its advantages and disadvantages. Debt advice will help you to overcome all the circumstances in the future.
In a debt management program, multiple companies will work with your lenders. They will negotiate with your creditors on your behalf. Thus, you will not have to pay a large amount as a monthly payment and the interest rate will be reduced. Moreover, this program is structured for three to five years and through this program, a debtor will become completely debt-free.
If you have an unsecured loan, then the debt management plan works best for you. No collateral is attached with the unsecured loan and some of them are personal loans, medical bills, Payday loans, and many others. If you are planning to apply for DMP or Debt Management Solutions, then make sure that you have the complete knowledge of this matter.
Welcome Solutions Debt Management
In this section, we have discussed the recommendable Debt Management Solutions. There are many factors to qualify for these solutions such as your credit rating, your ability to pay, and many others.
Below, we have discussed the common forms of debt management plans and those are:
- Self Administrative
If you are qualified for this plan, then you will not be able to spend money as per your choice. At this time the creditor will take control of your expenditure and they will make a monthly budget for you.
- Debt Consolidation
Sometimes, it can be possible that you have a good credit rating. The good credit rating will help you to consolidate your unsecured debt with the help of the second mortgage. But, you need to keep in mind that if you are not able to return the payments, then you will lose your house.
You can go to a credit counselling agency in order to apply for a debt consolidation program and that you might find a safer alternative way. If you qualify for the debt management program or DMP, then you do not need additional borrowing. You will also be provided with helpful debt management advice.
- Bankruptcy
Bankruptcy is one of the most useful ways to free yourself from debt. But, you need to keep in mind that it can provide a negative impact on your credit report as it stays on your credit report for ten years. Your job can be affected because of the bankruptcy and you will face various issues when you try to borrow money.
- Debt Reduction Service
In this type of debt management solution, the profit organization will negotiate with the creditors. Here, you have to pay a large amount on your balance. If you want to free yourself from the debt, then you might find this option as a good one. But, you need to keep in mind that settlement with your creditor provides a negative impact on your credit ratings.
Advantages of Debt Management Program
If you are struggling to pay your debt, then you might find the Debt Management program is the best way to free from debt. There are various advantages to the Debt management program.
- Debt management program offers the debtors more affordable payments. Credit counsellors will work on behalf of you to the creditors in order to reduce the interest rate. That will help you to free from the stress and you will be able to clear off your debt effortlessly.
- This program offers a simple payment. You don’t have to make multiple payments monthly and you should write one check in order to clear your credit card payments. But make sure to remember the payment date because if you make payment after that date, then you have to pay late fees.
- With the help of the debt management program, you will be able to clear off your credit card debt within three to five years. If a debtor is motivated to do so, then the person can clear less than three years.
- If you make on-time payments, then it will provide a positive impact on your credit card.
- You will not have to receive any annoying calls from a collection agency. When you are approved for the debt management plan, the calls will stop automatically.
- You will be able to become debt-free faster by doing it yourself and the interest rate will be reduced.
- With the help of a debt management plan, you will be able to create a realistic monthly budget. It also helps you to stay more organized with your payments.
Disadvantages of Debt Management Program or DMP
Before applying for the debt management program, assure that you have a complete idea about the cons of DMP. If you do not know them, then you might have to face circumstances in the future.
- You can use the debt management program mostly for the credit card debt. If you have a student loan or medical debt, then you can not pay it through this program.
- During the three to five years you can not use the credit card or even you are not able to get new lines of credit.
- If you miss any monthly payments, then this program might be discontinued and then you will have to pay a higher interest rate.
How do Debt Management Solutions work?
First, you need to apply for this debt management plan and for that, call an NFCC-certified counsellor. After that, they will review your financial situation and then try to make a personalized plan.
When you are approved for the debt management program, then you have to make payment once a month. You have to deposit the amount into your account at each payday. Then, the counsellor will pay the money to your creditors on your behalf. At that time, you have to pay a lower interest rate and that will help you to become debt-free faster.
Debt Management Solution helps you to save money as they force you to live on a strict budget. When the creditors agree to your proposal, then you won’t have to receive collection calls. You will observe that the balances start to decrease.
Check if the Debt Management Plan is Right for You or Not
Sometimes, it can be possible that the DMP might not suit your situation. You should know that the debt relief option depends on the agencies. When you are in the following situation, then you might consider a debt management program.
- It can be possible that you have unsecured debt. If the debt amount is 15% and 39% of your annual income, then you should consider a debt management plan.
- Check whether you have a steady income or not and assure that you can pay off the debt within five years. Make sure to agree with your creditors, reduce your interest rate and that will help you to not struggle to make monthly payments.
Consider a Debt Management Plan to Become Debt Free
Before signing up to a debt management plan, make sure that you have selected a reliable credit counselling agency who helps you in this procedure. There are various non-profit organizations but some of the companies might ask you for a credit counselling fee of charge.
Always go to a reputable credit counselling organization because they have certified counsellors who will help the debts to become debt-free faster. When you are in debt the counsellors will not only manage debt but also develop a practical budget for you.
Follow these Guidelines After Enrolling in a Plan
If you want this program to work for you, then make sure to follow the points that are mentioned below:
- First, you need to create a list on which debts you can pay through the debt management programs.
- Make sure to pay the counselling agency at a particular time of each month.
- Assure that you have reviewed your monthly statements. Thus, you will be able to know whether the counselling agency is paying the bills on time or not to the creditors on your behalf.
- You need to keep in mind that you can only pay your unsecured debt as you are restricted to pay a medical bill, student debt etc.
The Expectation from a Good Debt Management Company
Before going to a Debt Management Company, check whether the organization is reliable or not.
- A good debt management company always asks all areas of your income and expenses first. Various factors are included in expenses like credit card bills, rent, medical bills, and many others.
- Company will check your credit report in order to verify your information.
- The counsellor will provide you with information on which sector you can reduce the spendings. They will even ask you to save more money.
- If you agree to enrol the program, then the counsellor will make a budget for you and send it to your creditor in order to make a counter-proposal.
Important Aspects About Debt Management Plan
There are a few things that you need to remember when you are planning to apply for a debt management plan.
Assure that You are Not Fooled by Non-Profit Status
There are many non-profit organizations available who work with you but still, they do business to make money. Debt management companies charges fee as a modest monthly fee. Most of the time, they share their structure as they are on your side. Debt management organizations negotiate with your creditors to reduce the rate of interest.
When you are struggling to make the monthly payments, then you usually do this by yourself. You will find many creditors who like to free you from debt as they want, you do not face bankruptcy which is stuck to them.
Credit Score Can be Dropped
Sometimes, you might not be able to make on-time monthly payments because of your financial circumstances. With the help of debt management, you can improve your condition. Your credit score will drop when you are not able to make payments towards your debt. Moreover, you will find that various creditors will close your account while you are under debt management.
Make Sure to Give Up New Credit
When you get the approval for any debt management program, then you are strictly prohibited to open new lines of credit. If you take a new line of credit, then you will not be able to take the benefits that the debt management program offers.
If you are trying to free from the debt issues at the earliest, then make sure that you have not opened new lines of credit. During the time of your repayment period, you should not anticipate needing an auto loan.
