What is Debt Management?

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You see it coming. Every time you look at yet another of your credit card statements and can only afford to make the minimum payments, you are aware that it is time. Balances are mounting and with that the awareness that it is essential to get control of additional spending and increasing debt due to minimum payments and compounding interest. Do you want to start making late payments, incur late fees and negatively impact credit scores? Climb out of the hole and make headway on outstanding balances with a feasible debt management plan.

What Happens When You Consolidate?

A debt management plan, or DMP, reduces high interest rates and creates a more suitable monthly payment schedule for your situation. It is a voluntary agreement between individuals, counselors and creditors. Individuals can begin to make headway on principal balances and gain control over their finances.

Unsecured debt is consolidated, regardless of credit score, in a debt management plan. Types of unsecured debt that are eligible for inclusion are:

  • Credit cards;
  • Gas cards;
  • Department or specialty cards; and instances of
  • Payday loans; and
  • Unpaid medical bills.

Secured loans such as mortgages, home equity loans, auto loans and general student loans cannot be applied. Collection debt may be able to be included in certain instances. While on the plan, all credit cards will be closed and no new credit lines may be opened.

How Do Credit Counselors Work For You?

A credit counselor will spend time (45-90 minutes), to review your situation, including your finances and budget. They will offer advice on managing sending and reducing debt, and a new budget will be created for the client that takes their unique situation into account. When individuals continue with a debt management plan, credit counselors take additional steps to intervene with creditors for clients.

A new payment schedule will be agreed upon by all parties. Payments are based on the total amount of debt and your budget. Counselors contact creditors on your behalf to agree on reduced interest rates and an adjusted payment schedule. These changes to payment expectations make a significant difference to how quickly and how easy balances are paid off while reducing the amount necessary from individual budgets to meet acceptable payments.

A credit counseling team transforms how individuals think about and handle their finances. Signing up for a debt management plan provides a means of:

  • Ongoing support. Support staff are always available to help current client with any concerns or questions.
  • Housing counseling. Clients that are homeowners can speak with HUD-certified housing counselors for additional guidance.
  • Regular progress reports. Credit counselors prepare monthly progress reports to demonstrate payment distribution and remaining balances.
  • Continuing education. There are a number of free courses and seminars available on a range of subjects, such as understanding credit scores and reports, managing credit, financial planning, avoiding foreclosure and more.
  • Payment processing. Counselors accept deposits electronically and disburse them according on a fixed schedule for timely payments.
  • An intermediary with creditors. Credit counselors make communication easier and speak with either clients or creditors for either party.
  • Budgeting assistance. We partner with clients to establish a workable budget and help them during the life of the plan. Additional budgeting courses help clients fine-tune their budgets to changing needs.

Get the support you need to manage your finances today.

Is There a Negative Impact on Your Credit Score?

A debt management plan can actually improve your credit score. Individuals that make regular payments on time and complete the program, see their credit scores remain neutral or increase. How does this happen when you are paying less overall? Each creditor has accepted the new payment schedule and rates, therefore no negative impact will be seen on your credit scores when the terms are fulfilled. During this process, you eliminate your unsecured debt and build a positive track record of payments. These are two major factors when credit scores are calculated.

How Does a Debt Management Plan Quickly Pay Down Debt?

There are a number of benefits derived from a debt management plan. Individuals that enroll in the program:

  • Make a single monthly payment with a reduced interest rate.
  • Have a larger percentage of each payment applied to the principal of the balance.
  • Can see a savings of 30 to 50 percent of what would be paid on balances before consolidation with high interest rates.

Experts tailor a program that meets your needs and make it possible for you to pay off outstanding balances faster than without consolidation. More money also stays in your wallet or is used towards the principal with a debt management program, as interest rates are significantly lower.

Turn to experts to help you resolve escalating debt and develop a debt management plan with practical steps that reduce the amount owed on credit cards. Pay off your debt without lowering your credit score and gain financial literacy with a debt management plan.

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Last modified: January 4, 2018

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