Are you struggling to pay off your credit cards or other unsecured debt each month? Have you fallen behind on payments?
Being in debt is stressful. In 2019, the National Foundation for Credit Counseling survey found about 37 percent of participants carried credit card debt from month to month. When you need to charge more on your credit cards just to keep from falling behind, or you’re making payments without the balances going down, you may need outside help. Fortunately, you have options.
One option that may help you get out from under unsecured debt is a debt management plan or DMP. A debt management plan combines all your unsecured debts into one monthly payment, which you typically pay off in three to five years.
However, debt management plans aren’t right for everyone and don’t work for all debt types. The free Debt Relief Helpline at (888) 790-1337 can connect you with a qualified debt counselor so you can determine if a debt management plan is the right choice for you.
What is a Debt Management Plan?
A credit counseling agency, often a non-profit group, helps you set up a debt management plan. The agency’s counselor negotiates with your lenders to consolidate your debts into one monthly payment that you can afford.
You may want to pursue a debt management plan if:
- You struggle to make monthly payments.
- You have multiple credit card debts or other unsecured debts.
- You don’t have a way to pay off your unsecured debt soon.
Typically, you first discuss your bills and credit reports with a counselor at the agency. The counselor will help you determine your potential options and whether a debt management plan is right for you. If you choose a debt management plan approach, the counselor will negotiate with your lenders to reduce interest rates, monthly payments, and waive any fees.
Once you establish a debt management plan, you will deposit money every month with your credit counseling agency. The agency then uses your deposit to pay your debts according to the established payment schedule.
Debt management plans are only for unsecured debts like credit cards. If your most troubling debt is from secured debt, such as a mortgage, then a debt management plan will not be the right choice for you. Also, if you have a debt management plan and have secured debt, you will be responsible for paying off the secured debts yourself.
Benefits of a DMP
A debt management plan can provide a path to help you become debt-free without having to pursue more drastic options, such as bankruptcy. While it’s not for every situation, debt management plans have multiple benefits that can help you pay off your debts.
Reduced or waived fees.
Often, high-interest rates and fees make it challenging to make progress on paying off your debt. Fortunately, your credit counselor will attempt to negotiate with your lenders to reduce or waive fees you’re currently paying as a part of your debt management plan. Lower interest rates and reduced fees often will result in lower monthly payments. This reduced payment helps make it possible to pay off your debts.
Just one payment each month.
When you’re struggling to keep up with unsecured debt, you often find yourself juggling payments to multiple creditors. When you have a debt management plan, you will only have to make one payment a month to your credit counseling agency. They will then use your monthly deposit to pay each of your creditors for you.
No more collection calls.
As a part of the debt management plan process, your lenders must agree to this arrangement. Therefore, you won’t have to worry about collection calls from those creditors as long as you continue to make your monthly payment to the credit counseling agency.
You’ll pay less and get out of debt faster.
When your credit counseling agency negotiates lower rates and fees, your monthly payment is reduced. As a result, you won’t have to pay as much over time and can often pay off these unsecured debts faster.
You will know when you will be debt-free.
When you get behind on unsecured debts, it can be a challenge to know when you’ll be able to get caught up. A debt management plan establishes the exact timeline when you’ll to pay off your debt. You’ll know exactly when you will be free of those debts.
You can set up automatic monthly payments.
In addition to only having to make one monthly payment to cover all your unsecured debt, you’ll typically arrange to have the payment automatically made each month. This automatic payment will ensure you have paid on time every month without you needing to think about it.
Disadvantages of a Debt Management Plan
Debt management plans do have consequences that may not work for everyone. Before agreeing to this type of plan, make sure it is right for your situation.
Debt management plans are a long-term decision.
Typically, a debt management plan lasts three to five years. During that time, creditors will close or suspend your lines of credit.
Your credit cards will be closed, and you can’t get new loans.
All your credit cards accounts will be closed during your debt management plan. You won’t be able to open new credit cards or qualify for new loans until your payments are complete. As a result, you must be able to live credit card free during this time.
There can be some exceptions, such as having a credit card for business. Consider discussing this with your credit counselor before agreeing to a debt management plan.
You likely will have a mention on your credit report about your debt management plan.
Your credit report will likely indicate that you’re in a debt management plan. This note won’t impact your credit score but does alert lenders not to offer you credit lines during this time.
While debt management plans typically don’t negatively impact your credit score, keep in mind that your debt-usage ratio will be affected. However, typically, people see an overall improvement in their credit score since their overall debt levels decrease over time.
You must consistently make your monthly payment.
To maintain your debt management plan’s benefits, you must consistently make your monthly payment to your credit counseling agency. If you don’t pay or don’t pay on time, you could lose the negotiated benefits.
Not every company participates in debt management plans.
While most creditors will work with your debt management plan, a creditor can decline to participate. If that happens, then the debt management plan may not be the right choice.
Is a Debt Management Plan Right for You?
If you struggle to pay off unsecured debt, especially from credit cards, a debt management plan may be the right option to help you become debt-free. When selecting a company, look for a reputable credit counseling organization whose counselors are certified and trained to help with debt management.
Want to talk to a trusted debt relief center to discover your debt management options? Call the free Debt Relief Helpline at (888) 790-1337 to connect with a prescreened, reputable service provider today.