Debt is a crippling problem in our nation. If you are scrambling each month to make ends meet and creditors are starting to call, then you may be considering a debt management plan for relief. Before you choose any such action, however, it is important to understand how it works.
How a Debt Management Plan (DMP) Works
A debt management plan is known as a DMP. These plans can help people with a lot of debt avoid default or bankruptcy. First, you will need a credit counselor. Only work with someone who is reputable from an approved credit counseling agency. The counselor will then work with your creditors to seek any reduction in your payments or fees. After the negotiations are finished, you will make your payments through the counselor to manage your debt.
The Benefits of a DMP
The reason people choose a DMP is that it makes their debt easier to handle. Moreover, a DMP may be able to reduce the amount you pay each month by lowering the interest rates or fees associated with your debt. This can minimize the pressure from creditors, and it should reduce the number of calls and letters you receive about your debt. A DMP also provides a clear sense of how much you owe and how much longer you will be paying off your debt.
The Drawbacks of a DMP
There are still some drawbacks to a DMP. In many cases, a counselor will require you to stop using credit cards to avoid new debt during the process. Additionally, without an open credit line and through debt reduction, your credit score can be lowered. It should also be noted that a DMP is only useful for certain types of debt. While it is good for credit card debt and other unsecured loans, it is not an option for your mortgage, home loans or student loans.
A DMP is not your only option. You can also consider debt consolidation and debt settlement. Debt consolidation is a process that binds your loans together. This differs from a DMP because it is actually another loan. The advantage of a consolidation loan is that it allows you to include all types of debt.
A settlement, on the other hand, is often looked at as a last resort. A settlement is only viable if your debt is clearly something you will never be able to pay. If your financial situation is that dire, you may be able to get your creditors to accept a partial payment. This partial payment will only be accepted because your creditors believe that they will never get the rest of their money. It can negatively impact your credit score, but it will stop your creditors from harassing you.
Manage Your Debt Today
All debt solutions have their pros and cons. If you want to know which one is right for you, then get expert advice now. Contact Christian Debt Counselors today to discuss a debt management plan and other options for your debt relief.