A few weeks ago, I discussed How Debt Settlement Works , and today I wanted to talk about another debt related topic – debt management programs or debt management plans.
A debt management program is similar to debt settlement in that you pay a third party who will, after taking their fee, pay your creditors. You are still responsible for your debts but the third party will help you stay disciplined in keeping your obligations. However, that’s where the similarities between the two differ.
A debt management programs or plans may be able to help you negotiate for lower interest rates on your debts, get your late fees waived or reduced, work out a payment schedule, and potentially consolidate your various monthly payments into one payment. Like debt settlement, these programs are not cheap and some places will charge you a lot in fees. The goal with a debt management program
Please consult a lawyer and an accountant before making any decisions based on the information you read here.
How Debt Management Programs/Plans Work
Usually you contact a credit counseling organization and, after a thorough financial review, they may recommend that you begin a debt management program to help you repay your debts. I recommending reading this Federal Trade Commission article on credit counselors  before you make any decisions.
The DMP is a fairly simple program. You deposit money each month with the credit counseling organization and they use those funds to repay your unsecured debt. They will contact your creditors on your behalf and try to get your interest rates lowered and some fees waived. You will have to double check that the counseling organization is actually doing this, otherwise you’re paying them for nothing. Call your creditors and confirm that they have accepted the plan as outlined by the counseling organization. The key in all this is that there is a plan in place, based on your financial situation, and that you know you’ll be free of those debts after the program is complete.
The FTC has a must-do list for people on DMPs , if you are considering it then I would read that article and make sure you can do everything on that list before you sign up. It doesn’t help you to sign up for any debt solution if you can’t meet the solution’s requirements!
You Can Do It Yourself
There is nothing about debt management that you can’t do yourself, if you have the discipline. Unlike debt settlement , where you negotiate with creditors and convince them to take a lower settlement, debt management requires very little negotiation. One of the most important things you should take away from this article is that you can do this yourself.
In addition to being able to do it yourself, it requires a lot of discipline whether you work with credit counselors or not. You still need to make payments. If that’s a problem today and a little interest rate help isn’t enough, it makes no sense to pay counselors to setup a plan or enroll you in a program that won’t help. In the end, you still need to make payments and these programs are not panaceas.
Do It Yourself Debt Management
Have I convinced you that it’s something you might be able to do yourself? If so, here’s the DIY version:
- Set up a budget: Budgeting may seem like a pain and you may not know how to budget , but it’s an integral part of any plan to pay off your debt. With a budget, you’ll be able to cut unnecessary expenses and find extra money to put towards your debts.
- Call creditors: This is the only “scary” part of the process because you’ll need to ask your creditors for some help. Ask them if they can waive your late fees, reduce your interest rates, or work with you to setup a payment schedule that you can meet. Be honest and tell them that you’re in debt and trying to get out, you just need a little help. They don’t want you to go bankrupt, miss payments, or otherwise default, so they should work with you.
Sounds easy right? The plan is straightforward, it’s the execution that’s tricky.
There are a ton of people who have repaid their debts without the help of debt settlement or debt management programs, but if you’ve used a DMP (even if it’s a homegrown one), please share your experiences.