Financial Resource

You can take help of a debt management plan/program when you’re unable to pay off your debts on your own. At first, you can go for a credit counseling session and the agency will offer a debt management plan or a DMP if simple budgeting tips are not enough to clear your dues. Debt management plans are also offered by debt management companies.

How a debt management plan functions

Debt management plans function in the same way regardless of whether they are offered by a credit counseling agency or a debt management company. In such a program, the agency/company negotiates with your creditors to reduce the interest rates on your outstanding bills/debts. Then, it assesses your financial condition and decides upon a monthly payment plan with which you can repay your multiple dues. The company/agency also gets it approved by your creditors. When you make the agreed upon monthly payment to the agency/company, it distributes the amount amongst your creditors on your behalf.

DMP – Its advantages and disadvantages

Following are some advantages and disadvantages of paying off debts with the help of debt management plans.

Advantages:

Stops harassing calls – You can stop harassing creditor/collection calls when you go for a debt management plan.

Reduces loan interest rates – The counseling agency or the debt management company negotiates with the creditors to reduce the interest rates on loans so that it becomes easier for you to pay off debts.

Monthly payments get reduced – The monthly payments automatically get reduced when the creditors agree to lower down the interest rates on the loans. So, whenever your financial condition permits, you can make extra payments towards reducing the outstanding principal balance. This helps to pay off debts faster.

A single monthly payment – A single monthly payments helps to reduce multiple debts/loans. It is also easier to manage a single payment than remembering the due dates of multiple payments.

Disadvantages:

Fees for the program – Usually, you need to pay a professional fee to repay your debts with the help of debt management plans.

Cannot pay off secured debts – It is not possible to pay off your secured debts (such as, a mortgage loan) with the help of a DMP.

Creditors may not accept – The creditors may not agree to the repayment plan as proposed by the counseling agency or the debt management company.

In spite of the disadvantages, you can get relieved from stress when you pay off debts with the help of a DMP. Moreover, by enrolling in debt management plans, you can get tips on how to manage your personal finance in a better way so as to avoid debt problems in future.

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