What Is a Debt Management Plan?

A Debt Management Plan (DMP) is a structured repayment plan managed by a credit counselor on your behalf. It consolidates your credit card debts and sometimes other unsecured loans, allowing you to pay them off within three to five years. By negotiating with your creditors, the counselor can often secure lower interest rates and fee waivers, helping you save money and pay off your debt faster.

How Does a Debt Management Plan Work?

To get started with a DMP, you’ll need to meet with a certified credit counselor. Here’s a step-by-step overview of the process:

1. Find a Credit Counseling Agency: Search for reputable agencies through the National Foundation for Credit Counseling or the Financial Counseling Association of America.
2. Meet with a Credit Counselor: During a free initial meeting, discuss your finances, budget, and goals. The counselor will present several options and discuss the pros and cons of a DMP.
3. The Counselor Meets with Your Creditors: If you decide to enroll, the counselor will negotiate with your creditors to lower interest rates, waive fees, and bring past-due accounts current.
4. Close Your Included Accounts: You’ll need to close the credit cards included in the DMP and agree not to open or use new credit cards while enrolled.
5. Make Monthly Payments to Your Counselor: You’ll make a single monthly payment to the counseling agency, which will distribute the funds to your creditors.

How Much Can You Save With a Debt Management Plan?

Debt management plans can help you save money by lowering interest rates, getting fee waivers, and helping you stick to a debt-payoff strategy. While there are setup and monthly fees, the overall savings can be significant. For example, repaying $18,000 in credit card debt with a DMP could save you almost $7,000 compared to paying off the debt on your own.

Pros and Cons of Debt Management Plans

Pros

• Potentially lower interest rates
• Waived credit card fees
• Bring past-due accounts current
• Fewer monthly bills
• A structured plan you can follow

Cons

• Only some debts are eligible
• Can’t use credit cards while enrolled
• Fees apply

Is a Debt Management Plan Right for You?

While DMPs can be beneficial, they’re not always the right fit for everyone. If you can’t afford to pay off your debts even with reduced interest rates, bankruptcy might be a last-resort option. Alternatively, if you can manage other credit card payoff strategies on your own, such as a balance transfer card with a promotional 0% introductory rate, you might have more flexibility without a DMP.

Contact O1ne Mortgage for Your Mortgage Service Needs

If you’re looking for expert advice and assistance with your mortgage needs, O1ne Mortgage is here to help. Our team of professionals is dedicated to providing you with the best service and solutions tailored to your financial situation. Call us today at 213-732-3074 to discuss your options and find the best mortgage plan for you.