Debt Management Plan: How It Works And How To Make It Work
The reason why you can not seem to make ends meet financially could very well be because of your inability to repay your dues
. One of the things a credit counseling company would recommend for you to take is a debt management plan (DMP). If this is the first and only thing the company tells you to enroll in, then you might want to look for another counseling agency. This is because DMP, per se is not credit counseling.
More than its not being the solution to all credit and debts problems, it is also not for everyone. One thing that would tell you that you already need DMP is when you have already talked with a certified credit counselor who has spent time and effort understanding the entirety of your financial situation. That is apart from giving you a personalized advice on managing your finances and teaching you how to make one. This means that you have to be taught of other important things about budgeting and money management before the credit counseling company sends you to a DMP.
How it works
Debt management plan is something handled by your credit counseling company. You have to deposit an amount of money each month to the credit counseling organization and trust that they will be the one to pay your unsecured debts based on the schedule the creditor, yourself and the counselor have worked out. Through DMP, the creditors may agree to lower interest rates or waive certain fees. But, they would check with all your other creditors just to make sure that what they are all doing is what the credit counselor told you.
Since you still technically pay for your own dues, this means that DMP is only successful if you make your payments on time. Usually, legitimate DMPs take 48 months or longer to complete. Of course, you can always ask the counselor his estimation before you begin. If you think it would be more helpful to not apply for or use other accounts and additional credit when you are in DMP, you can ask your credit counselor to make arrangements.
How to make it work
In other words, DMPs are created to make sure that you pay your debts and that you don't fall into additional ones. This can be success if you...
- continue paying on time until the plan is approved by your creditors. You will still receive penalties if you stopped personally paying your creditors while waiting for their approval.
- contact your creditors to make sure that they approved the plan, do this before you send deposits to your credit counseling agency.
- make sure that your counselor has created a plan to pay for debts before they are due each month. Also, make sure that the agency did pay the creditors on time by calling your creditors.
- review monthly financial statements or credit reports to make sure that the creditors receive payment.
- make sure that monthly statements also contain the agreed upon concessions such as lowered interest rates and finance charges and waived late fees.
by: Leo Chu
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