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Debt Management: Repay Debt without Hurting Your Credit

When you find it difficult to get into terms with routine credit card payments in addition to regular expenses, the ideal solution that can help you at this hour is debt management. With the help of an efficient management plan, you can lower your monthly bills to a considerable extent. In addition to this, you can also get rid of penalties and late fees.

Debt Management Plan

A DMP or debt management plan can be obtained with the help of an online debt management organization or credit counseling. These options will help you when you have crossed your budget and are going through a financial situation. You can always count on a credit counselor who will help you decide how you will be able to reduce the monthly expenses for your credit card bills. Make sure to go in for a debt management plan that gets along well with your needs and goals.

Let us now take a look at an example to find out how a debt management plan will help you.

A person has two credit card and one personal loan.

The interest rate levied on the first credit card is 10%. The interest rate levied on the second credit card is 15%. The interest rate levied for personal loan is 20%. Hence, the average interest rate out is 20% (10%+15%+20%/3).

The outstanding balance for the first credit card is $20,000 and for the second it is $15,000. For the personal loan, the amount owed is $10,000. Hence, the total debt amount calculated is $45,000.

But then, the person is not in a position to pay his debts on his own, as a result he considers enrolling for a debt management plan. He combines the debts to one monthly payment at an interest rate of 10%. The entire rate of interest is lowered by 20%-10%, i.e. 10%.

If the person's payments prior to the debt management plan was based upon three percent of monthly balance and he was supposed to make a minimum payment, then would have paid $40,000 in addition to an extra amount of $45,000 because of the accrued interest. By opting for a debt management plan, the person is able to lower her combined interest rates to as low as 10%. His payment will come around $10000 per month.

From the overall calculation, it is clear that with debt management plans you can get hold of viable payment relief.

What types of Bills Included in A Debt Management Plans

The following bills are included in a DMP:

  • Department store credit
  • Personal loans
  • Credit card bills
  • Medical bills

When do You Require A Debt Management Plan?

You need to go in for a debt management plan under various situations like:

  • You are having multiple bills and not in a position to manage them effectively.
  • Your idea of opting for a self repayment plan has failed
  • You have landed in a financial crisis and are in need of a professional intervention
  • You want to keep off from collection calls
  • You want to reduce the rate of interest on your bills

How DMP Can Help You?

A debt management plan can help you in the following ways:

  • It lowers rates of interest as well as monthly payments
  • You can waive off the over-the-limit charges as well as late fees
  • You will not get any harassing calls
  • Instead of paying multiple bills you need to pay one bill per month
  • You will be able to clear your debts within a short time span

Choosing the right debt management company

To look for a good debt management company, you need to look for the following information:

  • Service background
  • Company profile
  • Testimonials from client

Steps in A Debt Management Program

  • An ideal debt management company helps in evaluating your present financial status. It takes into consideration the interest levied on your bills, overall amount you owe as well as the minimum payment that is levied on all accounts. The company may also ask you about your goals and help you attain the same.
  • After you have enrolled with a debt management company, it is the company's responsibility to negotiate with the collection agency or creditor to lower the rates the interest.
  • The debt management organization helps you come up with a repayment program that will help you pay back your balances. If you are able to manage your debt well, then you can keep a track on your finances.
  • You can make a one time payment to the organization. The company will then transfer the same payment to the creditors.

Let us take a look at the tips that you need to follow when it comes to managing debts using a debt management plan or program.

  • Make sure to go in for a plan only if you find it affordable. If the debt management organization you choose offers a repayment program that may seem unaffordable, then make sure not to go for the same.
  • Ensure getting everything in pen and papers. For this, you may even have to authenticate the exact duration of the program as well as the monthly expenses prior to signing a contract.
  • Make sure that the DMP is approved by the creditors. After you have enrolled in any debt management program, make sure that your creditors have approved the same.
  • After enrolling in a debt management program, be sure that you are regular enough when it comes to making a payment. It is because, if you miss a payment, chances are quite likely that you have even lost all the benefits that comes in with a program.
  • In general it is observed that the fees which are charged by credit counseling organizations that deal with debt management programs are well regulated in almost all states. Hence, make sure that you don't sign up for too high fees.
  • Ensure that the organization in no way sends any late payments to the creditors. Hence, be clear with your monthly statements and authenticate that payments are made on a timely basis.
  • Be sure to obtain a private policy from the debt management organization. When you go in for a debt management help, you need to provide a couple of personal information. Hence, be sure that your personal date is not revealed to anybody.

Is Your Credit Score Affected by An Online Debt Management Plan?

When you are enrolled in a data management plan, your credit report is the only option that reveals that you are making payments with the help of an organized debt management program. But then, Fair Issac Corporation or FICO, in no way will consider DMP or credit counseling when it comes to calculating the credit score.

By going in for debt management help and advice, you are sure to come out of debt related issues and lead a trouble free life. The only thing that needs to be done on your part is to stick to your budget and make your payments on time.

Help from Non Profit Debt Management Program

With the help of a non profit debt management plan, you can pay your outstanding debts and that too at lower rates of interest. The organizations providing non profit debt management plans usually charge a nominal fee in exchange of their services. These companies work in the like manner as the for profit management companies. An important difference between them is that the former companies generally don't pay any taxes to the IRS. They receive financial aid from the creditors as well.

Advantages of A Nonprofit Debt Management Program

  • Offers you counseling session for free
  • Helps you plan a budget
  • Helps you come up with a financial plan for repayi9ng the bills
  • They share a good rapport with the creditors
  • They help lower the rate of interest and monthly payments
  • They help waive off penalties and late fees
  • They help lower collection bills and re-age the accounts
  • They have a non confrontation perspective towards debt relief

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