If you have several debts and face difficulty in managing your payments, get involved in a debt management plan. What is it?
A debt management plan (DMP) is a way to manage and pay your debt. In a debt management plan a third party (debt counseling organization) manages your payments dealing with your creditors. The debt counselor organizes your income budget and distributes monthly payments to creditors. Creditors usually ask for a debtor situation review to make sure that they can regularly pay monthly debts. A DMP also provides advice and support to debtors.
A DMP seems to be a great help to debtors. However, it has both advantages and disadvantages. What are the advantages of a DMP?
- The interest rates are usually reduced, which means that you pay less monthly.
- The lenders loan you pay goes to the debt management company, which contacts lenders and then distributes money to them.
- Your creditors stop bothering you with their calls, which means that you are interested in paying your debts. Besides, you don’t have to meet them personally or negotiate with them. In other words, you save time and nerves.
- You can keep your anonymity in a debt management organization.
- Late payments affect your credit score and it can take you seven years to reestablish it. With a DMP you won’t have these problems since your reminded when to pay.
A DMP also has several disadvantages:
- Some DMP organizations ask for high fees for their services, which means you’ll have less money to pay down your debts.
- Many DMP organizations also charge a fee for distributing money to creditors. It may be about $30 per month. This is not very expensive, but considering the fact that you need to pay off debts, it can be problematic.
- Some DMPs may not give financial consultation and advice.
- Also you can’t pay secured debts with a DMP (such as rent and mortgage), but only for personal overdrafts, unsecured loans and credit card debts.
If your monthly payment is low and debt is high, you’ll have to spend a lot of time covering your debts. And also you’ll need to pay fees for the program. But considering the fact that the DMP arranges everything and you save time, it may be worth giving it a try, especially if the fees for the plan are low.
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