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Debt Management Plan: A Real Lifesaver

Debt Management Plan: A Real Lifesaver

It can be very difficult to live if you’re struggling with keeping up with debt payments or having to live paycheck to paycheck because of debts. We mostly find ourselves in overwhelming debt for our credit cards, loans, and store cards. As soon as we get in trouble, we decide that something should change with our spending habits. But first, we have to find out how to get back on track and pay off our existing debts. This is where Debt Management Plan (DMP) comes in. What is it and how did it become a real lifesaver? What are the advantages and disadvantages of dealing with credit counseling agencies? Keep on reading to know more about DMP.

What exactly is a DMP?

Debt Management Plan (DMP) is defined as an informal agreement between you and your creditors for paying back your non-priority debts. Examples of non-priority debts are credit cards, loans, and store cards. Paying back the debt will be done through a one set monthly payments which will be divided among your creditors. You don’t have to deal with the creditors yourself as there are DMP providers that can do that for you. Since DMP is not legally binding, you can cancel at any time if you think it doesn’t work for you.

How do DMP works?

To avoid balancing many different accounts, DMP will allow you to make one payment to a credit counseling agency which will then distribute the money to your creditors until they are fully paid. The provider will first help you set up a plan and a budget that shows how much you can afford to pay your debts after all your other living expenses have been paid. Once your essential costs are covered, the monthly payments you make to your provider will go directly to your creditors.

You do have to remember that agencies will not make loans or settle debts on your behalf. They are there to make arrangements with most financial institutions such as lowering interest rates and fees instead of you paying for finance charges. Keep in mind that not all providers offer concessions so be sure to find one that does. DMP allows you to have your debts organized, and with the right credit agency, lessens your debt payments as well.


Does DMP work for everyone?


You will know if DMP works for you if the following points apply to you:


• Your non-priority debts should only be the ones you’re struggling with not your priority debts such as mortgage, rent, and council tax, and living costs.

• You’re comfortable with paying for months or even years.’

• You don’t have too much cash left over. It is best to manage your accounts on your own if you have more than enough money in your hands.

• You prefer an agency to deal with your creditors.

• You want your debt to organize and make punctual payments.

• You want to pay lesser interest rates provided you chose the right credit agency.

• You don’t mind paying a fee that the provider charges.

• You don’t mind if DMP might appear on your credit record as it may make it hard for you to get credit in the future.


How Do You Determine a Good DMP Provider?

A good DMP provider will set you up for a counseling appointment to assess your entire financial situation. If the counselor finds you don’t have enough cash left after all your living expenses have been subtracted, you will then be offered a Debt Management Plan as a solution. Make sure that you choose a knowledgeable and compassionate counselor as they tend to be more motivating and will help enlighten your situation. As soon as you decide to enroll in the program with the right provider, the counselor will create a budget proposal and sends it to your creditors for them to approve or offer a counter-proposal.

Now that you’re starting to pay monthly to both your creditors and credit counseling agency, you will receive monthly statements which you must check religiously to ensure that payments are credited accordingly. Some of your debt might be paid off before the others but your monthly payment will remain the same because extra funds will be divided among the remaining creditors to pay them off faster.

Although you are capable of paying off your debts without the help of a Debt Management Plan, it definitely will help lessen the stress and clutter that overwhelming payments to multiple creditors can give you. DMP is a real lifesaver because it does not only help you focus on committing to live with your means and prepare for life's unexpected emergencies, but it also teaches you a lesson to stop your incorrect spending habits.


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