A debt management plan (DMP) is a program aimed at helping individuals that are struggling with unsecured debt to regain control of their finances. DMPs are developed by debt management companies working with individuals to evaluate their financial situation, negotiate with creditors, and assist them with making affordable monthly payments.
For those considering a DMP program, it’s important to understand exactly how it works and the steps involved in the process. In this post, you will learn about how DMP works and what you can expect once you enroll in a debt management plan.
Evaluating your financial situation
The first step when it comes to creating a DMP is assessing your financial situation. This typically involves reviewing your expenses, income, and debts to establish how much you can afford to pay every month toward your debt. To create your budget, the debt management company will ask you to provide them with the details of your expenses and income, including your essential living costs and regular bills. Then they will subtract your expenses from your income to establish how much money you’ve left over to put toward paying your debts.
Negotiations with your creditors
When you’ve created your budget, the debt management company will get in touch with your creditors and negotiate on your behalf. They will explain your financial situation and suggest a payment plan that will let you make affordable monthly payments toward eliminating your debts.
In most cases, the debt management company will try negotiating with your creditors to try and freeze interest and any charges on your debts. As such, you will only be required to pay the amount you owe minus any extra charges or fees.
Developing a payment plan
When your creditors have agreed to the terms of the DMP, your debt management provider will develop a payment plan outlining the amount you have to pay every month and how long it could take to pay off all your debts.
With the DMP, you will only make a single monthly payment to the debt management company, which will then distribute your funds to the respective creditors on your behalf. This should make it easier to manage your finances because you will only need to track a single payment every month.
Making the payments
When your DMP has been set up, you have to make regular payments every month to your debt management company. These payments will help pay off your debts over time.
Keep in mind that you have to make the payments on time. Missed payments might result in charges or late fees, which could harm your credit score. In case you’re struggling to make payments, you should contact your debt management company as soon as possible, as they may be able to adjust your current payment plan and make everything more affordable.
Benefits of having a debt management plan
There are a few benefits to using a DMP to manage your debts. The following are the most significant of them:
1. Lower monthly payments: Under the DMP, your debt management company will work to negotiate with your creditors to freeze the charges and interests on your debts. Your total monthly payment will lower significantly, which should make it easier to manage your finances.
Find out – Will entering a DMP affect my credit rating?
2. One monthly payment: A DMP lets you make a single monthly payment toward your debt management company, which will help distribute the funds to your creditors on your behalf. This will make it a bit easier to manage your finances because you will only have to track a single payment per month.
3. Eliminates calls from creditors: When struggling with debt, you may be getting a lot of calls and letters from your creditors. A DMP will have a debt management provider take over the communication with your creditors on your behalf. This way, you don’t have to deal with the constant phone calls and letters from different creditors.
4. Debt-free financial future: One key benefit of DMP is that it helps you become debt-free. However, by making regular payments towards your debts, you can effectively pay them off over time. To learn more about how debt management plans work, check out this guide.