In this blog, I’m going to tell you about Debt Management Plans (DMP), what they are, and how having one could help you. To get yourself a DMP all you need to do is get in contact with a debt management company and have them negotiate with your creditors to draw up new debt repayment plans.
Debt Management Plans are also great if you need time to think about all the other debt solutions that are out there.
A debt management company will contact your creditors and negotiate a lower repayment plan. They will also try to stop any more interest from being added to your debt. Although not all creditors agree to this, many do and whilst you keep paying back your debt, your chosen debt management company will continue their efforts to get you a better deal. Generally 90% of the creditors will stop interest once the plan is approved.
The two main points of a DMP consists of:
1. Reducing the cost of your monthly payments.
2. The handling of negotiations with your creditors.
When you begin a DMP you will start paying the debt management company an affordable monthly payment which they will then spread out amongst your creditors in proportion to how much you owe them. This monthly payment will be calculated by guidelines that ensure you still have enough money to live on and can still provide for essentials like your children, pets, and housing costs etc. The debt management company will take a small cut from this monthly payment as part of their fee so you needn’t worry about getting into debt with them. Although you may need to scale back on spending for a while, you can be sure you are heading in the right direction to becoming debt free.
You should be cautious when thinking of hiring a supposedly “free” or commercial debt management company as this can often lead to bankruptcy since many of them are funded by credit card companies and banks. Some charity debt companies will give you good advice but will not actually do any of the work on your behalf so keep that in mind.
An alternative to hiring a debt management company is self help debt management. This method means you do all the work yourself, such as negotiating with your creditors. If your debt is not too large and you contact your creditors first then you can usually expect to find them sympathetic and willing to sort out a new deal. If however, you leave your debts to a point where they are threatening legal action, you can expect them to be hard to negotiate with. If this is the case then they may refer you to a debt management company.
You should take care to fully explore all your options when in debt. Debt management companies can allow you to pay much smaller amounts but of course this will mean it will take a lot longer for you to be debt free. Some schedules have been known to take as long as ten years, obviously the more you can afford, the quicker the debts can be paid off.