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Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
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If you’re struggling to pay your monthly debts, a debt management plan (DMP) may help you make ends meet and eventually pay off your debt. A DMP is a repayment plan in which a credit counselor helps you determine how much you can pay toward your debt, consolidates your payments, and negotiates with creditors to possibly reduce interest rates and fees. You then make one monthly payment to the credit counselor, who pays your creditors until your accounts have no balance.
A debt management plan (DMP) is a repayment plan that helps you pay off your credit card and possibly unsecured personal loan debt. With a DMP, a credit counselor reviews your finances and informs you of your options. The counselor typically negotiates with creditors on your behalf to waive fees and lower your interest rates in exchange for repaying your debt through the DMP.
With lower interest rates, your reduced monthly payment could leave more room in your budget to repay your debt in full, which most DMPs aim to do within three to five years. Under a DMP plan, you’ll send a monthly payment to a credit counselor who distributes the funds to your creditors. Keep in mind, DMPs only cover unsecured debts like credit cards and some personal loans (though not student loans). They do not cover secured debts, such as mortgages and car loans.
Enrolling in a DMP doesn’t directly affect your credit score. However, your credit report will note you are participating in a DMP, which future potential creditors may consider when reviewing your application for new credit.
While your participation in a DMP won’t harm your credit score, the steps you must take under the plan could harm your credit scores in the following ways:
On the other hand, DMPs can elevate your credit scores over the long term as you make regular, on-time payments. As your debt declines, your credit score should gradually improve over time.
Even if a DMP is starting to sound like a good decision, weigh it against other alternatives to find the best option for your situation.
You can perform many of the functions in your DMP yourself. For example, you can contact your creditors and try to negotiate a lower interest rate and fee waivers. Bear in mind that an experienced and certified credit counselor may be more likely to earn concessions from your creditors.
A debt consolidation loan can pay off your existing debt accounts and combine the debt into one fixed-rate loan, ideally with a lower interest rate. The money you save could help accelerate the timetable to eliminate your debt.
Another way to self-manage debt is to get a low or 0% introductory annual percentage rate (APR) balance transfer credit card. You typically need to have good credit scores to qualify, but the savings can be substantial.
Debt repayment strategies, such as the debt avalanche and debt snowball methods, can help you eliminate debt by prioritizing your debts and creating a clear repayment plan. The debt avalanche method prioritizes paying off debts with the highest interest rates first to save money, while the debt snowball method focuses on paying off debts with the smallest balances first to create small wins and build momentum.
This strategy involves stopping payments to your creditors and attempting to negotiate with them to reduce or forgive your debt. As you might imagine, debt settlement is very risky, and it can have a severe negative impact on your credit.
Bankruptcy is a last-choice option, but there may be no other options for some severely indebted people. A Chapter 7 bankruptcy will wipe out all allowable unsecured debts so you can start fresh, while a Chapter 13 bankruptcy lets you pay a wide variety of debts through the court over three to five years.
If your credit is good and your debt is smaller, you may not need to enroll in a DMP. A strategic move like signing up for a balance transfer credit card with a 0% intro APR might provide you with the relief you need.
However, if managing excessive unsecured debt is overwhelming and it’s challenging to stay current on your bills, a DMP could help you alleviate the strain on your budget. Lowering your interest rates and monthly payments could help you avoid defaulting on a credit account or declaring bankruptcy.
If you choose to sign up for a DMP, your counselor will likely need a list of your current credit accounts. Consider checking your Experian credit report for free to review your open accounts and payment record. You can also monitor your credit throughout the process to see how your actions can impact your credit and see suggestions to improve your credit.
At O1ne Mortgage, we understand that managing debt can be overwhelming. Our team of experienced professionals is here to help you navigate your financial challenges and find the best solutions for your needs. Whether you’re looking to consolidate your debt, refinance your mortgage, or explore other financial options, we are here to assist you every step of the way.
Don’t let debt control your life. Contact O1ne Mortgage today at 213-732-3074 to speak with one of our knowledgeable loan officers. We are committed to helping you achieve financial freedom and reach your financial goals.
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