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What is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal, agreement that consolidates unsecured debts and allows you to make monthly payments to a credit counselling agency to repay your creditors.
Arranged and managed by a licensed credit counselling agency, a DMP is a flexible plan which allows you to increase or decrease repayments depending on your circumstances.
There is no one-size-fits-all all approach to debt management, with circumstances often changing throughout the duration of repayment – the DMP is designed with that in mind offering flexibility to ensure all debts are paid in full.
A DMP helps offer a sense of control when seeking debt help as experienced credit counsellors take control of contact with creditors, removing the daily stresses and anxieties that can come when managing debt.
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How does a Debt Management Plan work?
A DMP is available to those with five or fewer unsecured debts. The process begins with the credit counselling agency reviewing your level of debt against your income and monthly expenses to develop a realistic repayment plan that meets your affordability.
The agency will approach all creditors to make them aware of the DMP and in many instances, some creditors will agree to waive the majority of or all the interest on any debt.
What’s more, repaying in monthly instalments over the course of up to five years makes budgeting easier and offers peace of mind when handling your finances.
Payments will be taken until your debt has been paid in full – there is no debt forgiveness.
What are the benefits of a Debt Management Plan?
Dealing with debt can understandably seem like an overwhelming task, however, the debt management plan offers a simplified payment plan to help take the pressure off repaying creditors.
Flexibility
This plan offers the opportunity to increase or decrease payments to creditors in relation to your current circumstances.
Interest freeze
Although they are not obligated to creditors may reduce your payments and stop interest charges.
Affordability: You make one affordable monthly payment to the agency which distributes to creditors over a period of up to five years.
Informal
A DMP is an informal arrangement and not legally binding.
Flexible
The plan doesn’t need to include all creditors. Being open and honest with your credit counsellor will allow them to advise which creditors can be omitted from a DMP.
Reduces stress
Being faced with managing payments to several creditors can be a daunting and fraught task at times.
To help ease the pressure, an experienced credit counsellor will manage your DMP throughout its duration by liaising with creditors on your behalf.
Am I eligible for a Debt Management Plan?
A DMP works best for those who meet the following criteria:
- Those with affordability to allow them to repay the total debt amount in full.
- Have enough income to meet monthly payments on time.
- Are unable to access obtain debt consolidation due to poor credit and lack of security.
- Have a credit card and various other unsecured debts including payday loans.
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What debts can be included in a Debt Management Plan?
Any unsecured debt can be included in a DMP. An unsecured debt is a loan that is not backed by an asset. Examples of unsecured debts include:
- Credit cards – the most common type of debt that drives people to seek a DMP
- Store cards
- Medical bills – not all bills will be applicable, but many are
- Subscriptions and memberships
- Cell phone contracts
- Car insurance
- Overdrafts
- Auto repossession debt if you have failed to keep up vehicle payments
- Non-government-insured student loans
- Unsecured loans not protected by a collateral item
Advantages of Debt Management
- Payment term is no longer than five years, allowing you to focus on moving on from debt sooner.
- No more contact with creditors as the credit counselling agency manages the plan – let your credit counsellor ease the pressure.
- There’s no need to worry about paying out to different creditors. Simply make one monthly payment, based on affordability which in turn aids budgeting.
- Creditors can waive interest fees on debt, helping to reduce what you owe.
- Some creditors may not be included.
- A DMP is an effective debt management solution for those able to afford to pay off debt but need additional time without accruing interest.
- A DMP is an alternative to a consolidation loan for those with a low credit score.
- The plan can help pay off a range of loans including credit card debts and payday loans to name just a few.
Disadvantages of Debt Management
- To be effective, all creditors need to agree to the plan.
- Creditors can withdraw at any time as the agreement is voluntary and not legally binding on unsecured creditors.
- A wage garnishment is not stopped unless agreed by the creditors.
- It is expected your debt will be paid in full.
- There is no guarantee that interest charges will be frozen despite it happening most of the time.
- Your credit rating will be affected as you are not making the contractual monthly payments.
- It’s unlikely you’ll be able to obtain new credit while enrolled in a DMP.
- Any payments missed will affect your credit score and likely remain on your credit report for up to seven years.
Is a Debt Management Plan right for me?
A DMP has a wealth of benefits and could be your best option if:
- You need relief from unsecured debts
- Have sufficient income and want to consolidate your debts into one monthly payment
- Are searching for a flexible debt solution that suits your circumstances
- Can’t access a debt consolidation loan due to poor credit
- Step into a debt free future in no more than five years
- You want to avoid bankruptcy
What if I need impartial debt advice?
Dealing with your finances can be stressful, especially if you owe money to creditors and have no idea how you are going to pay it back. That’s where Farber Debt Solutions comes in.
Our mission is to help people deal with their debt, and we have put together a team of debt specialists with years of experience in money management.
If you’re researching debt solutions, or even just want some advice on how to improve your financial situation, you can talk to a friendly debt expert for free today at 877-375-6558.
