If you are intent on going through a debt relief program, you need a certain plan that will guide you throughout the process. Almost all programs, specifically those involving debt professionals, involves a plan.
Credit counseling is a type of debt solution that involves a debt expert. These professionals are called credit or debt counselors. Once you get in touch with a credit counseling agency, they will assign a counselor who will immediately work with you and assist you in your debt relief efforts.
In this program, the plan that you will use is a debt management plan or DMP. Credit counseling actually ends with the counseling efforts but you can choose to extend their service further by enrolling your debts in a debt management program.
The DMP is the formal plan that will guide you so you can pay your creditors diligently. It lists all your unsecured debts and the respective monthly minimum payments. The goal of your counselor is to help you make lower monthly payments that you can afford. This can be done by stretching your balance over a longer period and by negotiating with your creditors to allow you to pay lower interest rate. The counselor will take care of all the negotiations and creditor communication for you.
You have to be careful to follow your DMP strictly because any late payments could result in an increase in your interest rate. And if you end your DMP before completing payments, you can expect that the rate will increase as well.
A DMP is typically 2-5 years long. It usually does not go any longer than that. During this time, you will send a single payment to the counselor. This is the total debt amount that your DMP indicates you should pay every month. The counselor will take care of sending the payment to the different creditors specified in your plan. You need to keep your payments on time so as not to compromise the effectivity of the DMP.
The creditor can note on your credit report that you are going through a debt management program but you need not worry because it hardly has any effect on your score.
Having a plan will benefit you because you are given direction as to what happens every month and every payment. You can see your progress every month and that can be motivating – especially when you are able to see significant changes in your debt balance.
However, getting yourself in debt means more than just owing money. It indicates a bigger problem that revolves around your financial management skills. Apart from sticking to your DMP, it is best to come up with a budget plan that complements your debt relief efforts. You need to identify the cause of your financial difficulties so you can work on solving that too. If it means lowering your spending every month, then do so. If it means changing your lifestyle so your income can cover your basic expenses, then that is what you should do. Your debt management plan can help you get out of debt but staying out of it is entirely up to you.