When you have a considerable amount of debt, you might find that it is difficult to make payments. For some people, enrolling in a debt management plan might help to get creditors paid in a strategic manner. While it is a good help for short-term bill payment, it isn’t a long-term solution to the problem.
What is a debt management plan?
A debt management plan helps you to get your bills paid with the help of a credit counseling organization. You give the organization a set amount of money each month and they disperse it to your creditors. It is important to note that the debts that are paid in a DMP are unsecured, so you will still have to pay your car payment and other secured debts.
How will this help me?
Using a DMP takes the guess work out of which bills to pay off when. The credit counseling professionals use the funds to pay your bills in a manner that will help you get out of debt. Generally, you have to agree that you won’t obtain new lines of credit while you are enrolled. The credit counseling organization will work with your creditors, which might result in some creditors lowering interest rates or waiving fees.
What should I be aware of?
Generally, you have to learn about credit cycles and how your bills fall on the cycle. It is important to work with a credit counseling company that guarantees debts will be paid by the due date. The company you work with should also help you to create a budget so that you can achieve long-term financial independence.
If you can’t make a DMP work, you might need to consider bankruptcy as a way to get out of debt. Learning about all of your options lets you choose the method for dealing with debt in an informed manner.
Source: FindLaw, “What is a Debt Management Plan (DMP)?,” accessed June 04, 2015