A Debt Management Plan is a voluntary arrangement between you and your creditors that allows you to pay a lower amount every month to a nonprofit agency that will then distribute the money to your creditors. It can help you get out of debt faster and can allow you to build savings or buy a home. You and your debt counselor will agree on a payment schedule and the amount you pay each month. You will have to pay a small initial fee to join a debt management plan and monthly fees vary from state to state. However, you can often negotiate lower fees if you have a severe financial hardship.
It is important to research the debt management plan company you choose before signing up. First, look for an accredited organization. Avoid using companies that advertise themselves as “credit repair” services. Your rights as a consumer include removing inaccurate information from your credit report. You should also ask what services they provide and how much they charge. Never rely on verbal promises from a debt management company – it is crucial to read the terms and conditions carefully.
Debt management plans are ideal if you have a significant amount of unsecured debt but can make your monthly payments. This method will keep your credit rating in good shape while you pay off your debt. It will also help you to establish a realistic repayment plan, including milestones and a debt-payoff date. However, you should keep in mind that you may not get the same kind of professional advice from a debt management company as you would with a debt settlement. Moreover, you may have difficulty in negotiating with your creditors.
Another great benefit of a debt management plan is that you do not have to make new credit inquiries. These inquiries account for 10% of your credit score. As a result, opening new credit accounts in a short time period can negatively impact your score. However, debt management plans can help you rebuild your credit by reducing the number of new credit obligations you have.
A Debt Management Plan is more affordable than paying off creditors directly. It will include a fixed monthly payment and a timeline for paying off your debt. You will also stop receiving collection calls if negotiations are successful. A debt management plan also does not affect your credit score as much as bankruptcy. You should be aware that this type of plan does involve giving up control of your credit accounts, so it is important to be sure that you can afford it.
A debt management plan can be a great way to pay off credit cards and other high-interest unsecured debt. It can help you reduce your interest rates to around 8% and reduce your monthly payments to a reasonable amount. In addition, it can pay off your debt in as few as three to five years. A debt management plan is offered by nonprofit credit counseling agencies that analyze your household’s finances to come up with a budget that fits your debt-management needs.