Is a Debt Management Plan Right For You?
Want to pay off your debts while paying reduced interest rates? A Debt Management Plan (DMP) might be what you are looking for!
When you are in the process of paying off your debt, it can all get very overwhelming. You have multiple creditors to deal with, different companies calling you every week, and don’t even make me ask about the interest rate you’re paying.
A debt management plan is a tool for paying off your unsecured debt in 3 to 5 years, mainly credit card debt. You can sign up for a DMP, and they will negotiate a better interest rate. You only have to make one monthly payment and you can finally put the debt behind you.
Here’s exactly what a debt management plan is, everything you need to know before you consider signing up, and the best debt management companies to consult.
What is a Debt Management Plan?
A debt management plan is a debt relief option by paying off unsecured debt over time. If you can’t afford to pay off the debt in full and you’re overwhelmed with debt, this is an option. Debt management companies deal directly with your creditors for you. The goal for them is to lower your monthly payments, get penalty relief, and lower the interest rates on your outstanding debt.
The plan is usually designed by a business, such as a credit card provider or a debt management company. They will help you manage your expenses. It takes an average of 3-5 years to pay off debts, but it saves you money in the long run due to reduced interest and penalties.
A debt management plan is used to pay off credit cards, medical bills, and other types of unsecured debt.
Why Do You Need A Debt Management Plan?
Debt management plans are one of the most effective ways to get rid of debt. They help people lower their monthly payments and also make a better budget plan. Moreover, they help people organize their debts to pay them off without incurring a lot of extra costs and waive late fees.
Debt management plans help people manage their finances by consolidating their debts into one loan with a monthly lump sum payment. This is a great option because they can often save money on interest and create a budget plan.
Your monthly payment will reflect what you can afford from your current income. In addition, you must accept the amount before you start paying.
Debt management plans typically take 3 to 5 years. It starts with calculating the person’s income and then they decide how much they will pay each month.
Pros and Cons of Debt Management Plans
Here are the benefits of a debt management plan:
- You benefit from professional advice.
- Lowering interest payments means paying off your debt faster. It often drastically reduces your interest rates.
- You only have to deal with one party because your debts are consolidated with one company and they will split your payment. Plus, you’ll make just one monthly payment.
- You will receive fewer calls and mail from debt collection agencies.
- Finally, you will have a better long-term credit rating.
Debt management plans are designed to help people who are unable to repay their debt, but it can have some downsides:
- You will pay a small fee which is often offset by the lower interest rate, but is still a charge nonetheless.
- Not all of your debt is included, as DMPs only focus on unsecured debt.
- When you miss a payment, it can influence your interest rate lower.
- The repayment takes 3-5 years, during which time you can’t open new lines of credit like credit cards.
- Most businesses tell you to cancel your credit card accounts and not use a credit card, which means you will have less credit available.
Best Debt Management Companies
Debt management companies focus on debt resolution by offering various ways to help people pay off their debts. In turn, a debt management program receives compensation for its services.
A debt management company can help you budget, negotiate with creditors on your behalf, and provide advice and guidance to anyone struggling with debt.
Here are the best debt management companies to try, all rated A + by the Better Business Bureau.
Resolve is a company that helps you with a variety of things. They contact your creditors to pay off fees, negotiate lower interest rates, defer monthly payments, negotiate debt cancellation, and stop collection calls.
To resolve saves you an average of $ 2,738 in the first year and you can pay them what you think is right. When you sign up for Resolve, you can choose your monthly subscription amount and tip their team whenever you feel satisfied.
Money Management International (MMI)
MMI is a non-profit debt management company available online in 50 states and in person in 25 states. Their debt management plans last between 3 and 5 years.
Start-up costs at MMI are between $ 0 and $ 75, where the average start-up costs are $ 35. Their monthly fees range from $ 0 to $ 50, with an average of $ 24.
Cambridge is a non-profit credit counseling agency that helps clients in 48 months, where interest rates are often reduced from 22% to around 8%. A great service that credit counseling agencies typically offer is a credit counseling session to see if your debt management plan can work for you.
Startup costs and monthly fees vary by state. Average start-up costs are $ 42 and their average monthly costs are $ 30 per month. Cambridge offers its services in all states except Minnesota.
GreenPath Financial Wellness is a company that helps people pay off their debt within 3-5 years. Their start-up costs are between $ 0 and $ 50, averaging $ 35 per debt management plan. You also pay a monthly fee of between $ 0 and $ 75, which is an average of $ 29.
GreenPath is available in 50 states and is a great choice if you want to manage your debt online. If you are going to see them in person, they are your best bet if you live in one of the 21 states where they have physical offices.
Alternatives to a Debt Management Plan
When you want to pay off your debt, there are several options you can consider, and a Debt Management Plan (DMP) is just one of them. They are all different, so here are the alternatives to a debt management plan:
- If you have several small debts that you can pay off on your own, you can use the debt avalanche method to pay off the remaining debts yourself.
- Consolidation loans are for those who have good credit and want to consolidate the loans into one low interest rate loan. You can also determine the length of the loan and open new credit if needed with a debt consolidation loan.
- Filing for bankruptcy is a great way to get out of debt when debt is more than half of your annual income. Bankruptcy will erase the slate and you can start from scratch. You can enlist the help of an experienced bankruptcy attorney to help you navigate the process and answer all of your questions as you go through this difficult time.
Frequently Asked Questions
What is a typical debt management plan?
Debt management plans are a financial strategy that reduces your overall debt through a monthly payment. They are a great choice if you are having trouble making payments or are in arrears.
Debt management plans can be beneficial because they allow you to pay off your credit cards and other debts by consolidating your payments into one monthly payment. This type of plan also helps people with bad credit because it can stop the revolving cycle of interest rates resulting in increased debt.
Is A Debt Management Plan Bad For Your Credit Score?
A debt management plan allows consumers who have past due debts to pay off those debts in one lump sum payment. The program will generally reduce the total amount of interest a person pays over the life of their debt, which can be useful if they are having difficulty making payments.
The credit reporting agencies Experian, TransUnion, and Equifax agree that a debt management plan will not negatively affect your credit rating.
However, your score may drop at first, and it may take a few months before your credit score is restored. This is because your reduced payments will be reflected on your credit report in the short term. Over time, your regular, on-time payments will ensure your credit rating bounces back.
How Long Does a Debt Management Plan Last?
Debt management plans typically last three to five years. This is the time it will take to pay off the debt and regain financial stability.
Credit card companies will charge interest rates of 10-20%. This is what makes debt management plans so attractive. When credit card companies agree to charge minimal interest on money spent on debt repayment.
Many people decide to aggressively manage their debt and use the extra money they receive to pay off their debt, which can shorten the duration of your DMP without any penalties.
Overall – Debt Management Plan
Are you looking to pay off your debts, pay off your debts faster and improve your financial situation? A Debt Management Plan is exactly what you are looking for!
A debt management plan means that you’ll be pooling your debts with a national foundation to lower interest rates, get a lower monthly payment, and get financial advice. While this dramatically cuts down on your time to pay off your debt, you should also be aware that not all of your debt is included and you should either reduce your credit usage or close your credit cards entirely.
A debt management plan is the best option for you if you can pay your monthly payments, if you have mostly unsecured debt like credit card debt, and you can go without new lines of credit for 3 to 5 months. years.
One company that stands out in the field of debt management is Resolve. Resolve lets you choose how much you want to pay monthly, and the average person saves $ 2,738 in their first year with it.
Start paying off your debt now and you’ll thank yourself later!