A debt management plan or a DMP is an effective tool that is used by debtors to get out of debt. It is the primary guideline for anyone who enrolls their credit accounts in a debt management program. In fact, it is one of the first things that you will do upon enrollment – something that the debt counselor will teach you to do. It is what the counselor will show to the creditors and to gain their approval. But what exactly does a DMP contain?
First of all, this plan contains all your debts – at least those that you enrolled in the program. There are debts that cannot be helped by debt management like secured loans. If you have mostly credit card debt or other personal loans, then this can be enrolled in the program.
You need to list down all your debts and the details about it like the creditor, due date, minimum payments/required monthly contribution and the balance of the debt owed. Then you need to define how much you can afford to allocate for each debt. The debt counselor will then stretch the credit balance over a long period so that your monthly contributions will be lower – at least it should be within the budget that you gave. Since it is not yet approved by the creditor, the usual interest rates and finance charges will still be applied.
Once completed, this DMP will be presented to your creditor for approval. At this point, your debt will be frozen – meaning if you enrolled your credit card debt, you will not be allowed to use that card until after you finish the program. That will keep you from incurring more debts and thus ruining the DMP that you created.
If your creditors agree with the debt management plan shown to them, you will now implement it. You will be paying through the debt counselor by giving them the total total monthly contribution amount as stated in the DMP. The counselor will take charge of distributing the amount to your different creditors.
Now the secrets to create a successful debt management plan lies in the debt counselor that you will hire and the truthfulness of the data that you will input.
The debt counselor and the agency it is representing must be legitimate. Read about the TSR or Telemarketing Sales Rule to help you understand what defines a good company from the bad. Things like getting upfront fees or misleading clients through advertisements are only some of the rules that you have to know. The company should also explain to you the whole process and divulge all the fees that will have to be paid once there is proof that they are successful in working on your debt.
With regards to the truthfulness of your details, you need to be honest about how much you can afford to pay towards each debt. Anything higher may compromise the whole plan. If you cannot commit to it because you cannot afford the plan in the first place, then you may end up with more debt problems than when you started.
The appeal of debt management is there because is one of the debt relief options that is credit score friendly. However, there are rules to be followed so it becomes successful. Be truthful, choose the right company and commit to your DMP. That is what will get you out of your debt troubles.