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Should You Enroll in a Debt Management Plan?

Debt Management Plan

Debt Management Plans (DMP) are one of the options for people struggling with debt. They help you to consolidate unsecured debt into one monthly payment and can also lower your interest rate. The plan is generally based on your financial information and allows you to pay off debt over time. Typically, it is a three to five year process.

To determine whether you should enroll in a DMP, the first step is to make a budget. This can include your monthly income and expenses as well as your essential household expenses. A good budget will help you to avoid using credit cards and other high interest loans.

A credit counselor can help you set up a sensible budget and show you how to pay off your debt. There are many free counseling organizations. Many are nonprofit and offer customized budgeting assistance. Others may charge a fee. It is a good idea to get an estimate of the cost and find a credit counseling agency that meets your needs.

While debt management plans aren’t meant to get you out of debt, they can be a useful tool to reduce interest rates, fees, and other debt-related problems. Before you commit, you should investigate the details of each program, such as its success rate and the amount you’ll need to pay each month.

Choosing a credit counseling company with an excellent track record is an important consideration. If you’re unsure of a company’s qualifications, you can check with the Better Business Bureau or your local consumer protection agency. Some debt counseling companies offer services for free, so you should never hesitate to seek advice.

Depending on the debt management plan, you may be required to close some credit card accounts. If this is the case, you should consider how it will impact your credit score. Also, a new account can create a big impact, so you should try to avoid opening any new credit until you’re finished with the program.

Once you’ve decided to enroll in a DMP, you’ll be contacted by your credit counselor. Your counselor will gather your debt and financial information to see if you’re eligible for a debt management plan. He or she will then try to work with your creditors to lower your interest rates and other charges. In addition to lowering your interest rates, your counselor can negotiate fee waivers or penalty fees.

If you’re able to pay off all of your debt under a debt management plan, you may see a boost in your credit. Your credit score should improve after six to eight months of on-time payments. However, if you don’t keep up with your payments, you could lose your lowered interest rates and fees.

You may want to consider other debt relief options, such as a debt consolidation loan, a debt settlement, or bankruptcy. Before you decide, ask yourself these five questions:

What’s the best way to pay off your debt? How long will it take you to complete the plan? Does the company offer any incentives for making your payments on time?