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Almost 770,000 individuals filed for bankruptcy in the United States in 2017 alone. While that number has come down significantly since it peaked after the Great Recession, many people still find themselves so deep in debt they need to start over. But bankruptcy is a drastic step, so before resorting to it you should explore all your other options.
Debt management is one alternative for people who believe they can beat their debt with assistance. Here’s what you can expect from a debt management plan (DMP).
What Is Debt Management?
Debt management means working with a credit counseling agency to come up with a repayment plan for your debt. Instead of paying your various creditors each month, you’ll make a single payment to the credit counseling agency, which will then disperse those funds to creditors accordingly. One advantage here is that it’s simpler to make that single monthly payment under a DMP than it is to juggle multiple payments to lenders each month.
Another advantage is that you’ll be working closely with a credit counselor, who can be a helpful resource for financial advice and guidance. Just make sure you choose a reputable credit agency that has been approved by the U.S. Department of Justice.
The biggest advantage of entering into a DMP is that it can potentially get you more favorable terms on your debts. As Experian outlines, your credit counselor will try to negotiate on your behalf with creditors. Creditors may agree to one or more of the following:
- Reduced interest rates or monthly payments
- Waived fees
- Reduced balances
Be aware you will likely have to pay a monthly fee to enroll in a DMP, even through a not-for-profit credit counseling agency. For many people, the benefits of a DMP outweigh the cost to enroll — but make sure you know how much it will cost before signing up.
Pros and Cons of DMPs
Like anything else, there are certain pros and cons to pursuing debt management. It’s important to remember that not all DMPs are exactly the same. People considering debt management should do their own research so they know what to expect. Here are some other considerations:
- Debt management only makes sense if you’re actually planning to pay off your debt. You should be able to see a viable way for yourself to get out of debt by following the DMP. If you don’t, it’s probably just going to make things worse for you. You must commit to making monthly payments on time for as long as it takes to finish (typically three to five years).
- You need to be okay with not amassing more credit while going through a debt management program. Taking on more credit while you’re doing debt management will at best get you right back to where you started. It can also lead you to a much worse situation.
- Debt management isn’t going to help you if you’re not making enough money to cover your expenses. While a DMP can work really well for people with a steady income to continue paying down what they owe, it’s not going to work for people who won’t be able to get by without taking out more credit.
- Debt management gives people struggling with debt a chance to address it head-on. When done correctly, DMPs can work wonders for consumers. It’s just about understanding the process and knowing whether or not it’s right for you and your specific situation.
Thinking about debt management isn’t the most exciting topic. But a lot of people can find joy in the idea of putting their debt behind them. One possible avenue for eliminating debt is enrolling in a DMP.