When you are not being able to pay off your debts yourself, then you can take the help of a debt management program. The first step to take when you can not manage your debts is to go to a credit counseling agency. The agency advises you and guides you regarding how you can handle your debts. If this does not work out and there is no improvement in your financial condition, then you will be offered a debt management plan or a DMP. Even debt management companies offer debt management plans.
How does a debt management plan function?
When you enroll into a debt management plan the counseling agency or the debt management company negotiates lower rates of interest on your outstanding bills with your creditors. A monthly payment plan is then decided upon after your financial condition has been thoroughly assessed. You are to pay your dues as per this monthly payment plan that the agency or the company formulates for you. After you make your monthly payments to the agency or company, they will be in charge of distributing it among your creditors.
What are the advantages of a debt management plan?
When you take the help of a debt management plan to pay off your debts these are the following advantages that you get.
1. Reduction in monthly payments: As the debt Management Company or the agency negotiates with your creditors lower rates of interest, the amount that you are to pay towards your debt automatically reduces. Thus, you can make extra payments towards your outstanding debt as you will have more cash at your disposal to pay towards your principal balance. This helps you in paying off your debts faster.
2. Improves your credit score: You are to pay the fixed monthly installment to the debt management company or to the credit counseling agency. They are responsible for distributing this amount among your creditors every month. Thus, your creditors get paid every month.
3. Single monthly payments: When you enroll in a debt management plan you are required to pay only a fixed monthly amount to the debt management company or the credit counseling agency. This amount is fixed after your financial situation is assessed, so that you do not have any difficulty in making the payments.
These are a few basic things that you must know about the debt management plan.