Debt can turn into a burden if you take on more than you can manage. Or else, you may have a solid repayment plan messed up by unforeseen circumstances. And that can put you in a tight financial position, despite your wanting to clear all debt and live a stress-free life.
Prudent debt management plans can be your highway to financial freedom, enjoying life again, and repairing your credit score.
In this quick guide to debt management plans, you’ll find answers to some of DMP’s most frequently asked questions.
That way, you can make informed decisions on picking the right debt management plan for your specific situation.
What is a debt management plan?
A debt management plan is a service typically provided by non-profit, third-party credit counseling companies as a way to help you reduce your debt burden using financial education, close guidance, and follow-through.
A debt management plan is different from debt settlement or debt consolidation.
Unlike the two, a debt management plan will help you create a working plan to clear all of your loans.
What kind of debts can be included in a debt management plan?
Credit counseling companies provide the service for unsecured loans. So you can use a debt management plan to pay down credit card, unsecured personal as well as medical bill loans.
Since mortgage, auto, home equity and home line of credit loans are secured with the asset attached as collateral, they do not qualify for DMP enrollment.
Federal student loans don’t either.
Can you sign up online?
Depending on your credit counseling service provider, you can not only apply online, but you get enrolled on the phone, too.
Others may require you to present yourself in person to discuss the possibilities you have.
Must you enroll all of your debt into the debt management plan?
Debt management plans require you to disclose all debts you have so you can create an effective plan of attack to pay all of them.
Do your creditors know about your joining a credit counseling service?
Good credit counseling companies reveal this to all of your creditors.
After all, you’ll be making monthly contributions towards paying off your debt through them. So your creditors have to be informed that the repayments are coming from you.
Do credit counseling services offer confidentiality?
A reputable credit counseling service will not disclose personal information to third parties.
The best way to find out if a debt management service respects your privacy is to read their privacy policy. Get help understanding it if you must. But read it to be sure who’ll know your financial health.
Can you use your credit cards if you enroll in a debt management plan?
The whole point of debt management plans is to clear all the debt you owe.
If a debt management company doesn’t encourage you to close your credit card accounts, they are not serious about helping you live debt-free any time soon—as soon as from 48 months away.
Accept not to take more credit card debt. It is a good challenge that can help you learn to manage what you have by the end of the counseling period. That’s a wise skill you can practice free-of-charge for life.
What are the fees charged for debt management plans?
Some credit counseling companies charge an initial enrollment fee while some do not. The industry standard is about $75.
Most do charge a monthly fee to help them run their operations. That fee can range from $35-$55 from one service to another.
Be sure to ask about it and compare two or more to find the plan you find most suitable le to you.
