You’re finding it increasingly difficult to manage your debt. You’ve got multiple bills coming in, with varying payments and due dates. You’re not yet behind, but you’re also not making progress. The whole situation is weighing on you.
Don’t despair, though, because you do have options, one of which is debt management, a strategy for those who do have money remaining after paying living expenses, but who are having trouble keeping up with their obligations and are teetering on delinquency.
In that light, here are some benefits of a debt management program (DMP) – and more.
What is Debt Management?
This is a financial strategy that uses financial planning and budgeting to, at length, erase your unsecured debt. The method is facilitated by a certified credit counselor and can help you handle any new debt – personal loans, credit cards, etc. – after DMP completion.
How Does a DMP Work?
You’ll have a session during which the counselor will learn details of your situation as well as your financial goals. They’ll help you put together a budget, teach you how to manage money better, and primarily, determine what you can comfortably pay your creditors monthly. They’ll work with you to establish a plan to eradicate your obligations within three to five years, then use that plan as a basis for negotiations with the companies you owe. You’ll then make payments to the counselor who will forward them to your creditors.
Note that while you’re enrolled in the plan, you’ll be asked to close each card once it’s paid off. This is so you don’t incur new debt. One important proviso is that if you miss a payment you’ll likely be booted from the program.
Also, while most DMPs are free, there may be a nominal fee that’s typically added to the payments you submit to your counselor.
What are Some Benefits of a Debt Management Program?
No Loan is Necessary
Essentially, debt management is debt consolidation, but without the need for a loan. That is a key feature of DMPs.
A Better Interest Rate
Enrollment in a debt management plan made render you eligible for a lower interest rate and payment. Also, creditors oftentimes waive late fees and over-limit fees. So, the program could potentially save you money.
Further, a lower interest rate means that less of your payments each month will go to your principal, shortening the time it takes to pay off your obligation.
It Keeps You Organized
One advantage of such a program is that it provides structure. Because the plan keeps your organized, you’ll always be on time with payments. These days, recommendations of plan enrollment is good debt advice for Californians, who are leading the nation, on average, in credit card debt.
Better Credit Scores
If you make all your payments on time, your scores will ultimately improve. The key here is a show of consistency. Depending on the creditor, your account may even be marked as “current” once your plan has been accepted and you’ve made three straight payments.
Collectors Leave You Alone
When you first join the program, you may become deluged with collection calls. Since you’re making payments on time, debt collectors will notice and leave you be after about 90 days.
Just One Monthly Payment
This fact relieves you of a chief part of what you’ve found hard to manage: multiple payments. The plan streamlines bill paying.
Alternative to Bankruptcy
When it comes to debts, the last resort is bankruptcy, which can live on your credit report for up to a decade, depending upon the type chosen. Such a filing will usually prevent you from getting any kind of credit, which in turn can stop you from making major purchases such as a house or vehicle. A DMP helps you avoid bankruptcy.
So, yes, there are many benefits to a debt management program, including, of course, freedom from debt. But because the program also helps you with budgeting and provides financial education, it’s a tool that can help you stay out of debt.
If your circumstances are more serious, you may want to pursue debt settlement, with which Freedom Debt Relief can help. The approach involves getting your creditors to allow you to settle your debts for less than what you owe.
