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If you're struggling to pay off debt, a new way of managing your finances may be able to help you get back on track. There are a variety of debt relief options you can use, including enrolling in a debt management plan (DMP) or a debt resolution program. Both can help you regain control of your finances, but which option is best?
Debt management plans, also known as debt management programs, are offered through credit counselors. When you enter a DMP agreement, your counselor will communicate directly with your creditors and attempt to negotiate new payment plans for each of your enrolled debts. Rather than paying your creditors directly, you'll make a monthly lump sum payment to the credit counseling agency, who will send those funds directly to your creditors. The agency may be able to secure lower interest rates on your behalf, but it's unlikely that your principal balances will change. DMPs can vary in length, but most take about three to five years to complete.
Debt resolution programs, like those offered through Accredited Debt Relief, share many similarities with DMPs. When you enroll, Certified Debt Specialists will work directly with your creditors to secure better terms and agreements on your behalf. The key difference is savings: oftentimes, resolution companies can help lower your principal balances, allowing you to overcome your debt for as much as 50% less than what you originally owed. Debt resolution companies can also help you get out of debt faster than DMPs, with many clients being able to complete their programs in as little as 12-48 months.
After her husband's accident and periods of time without work, Amy found herself in a serious debt. Accredited Debt Relief helped her overcome more than $52,000 in credit card and medical debt.
Depending on your unique financial circumstances, a debt management plan may not be the best option for you. Be sure to research thoroughly before committing to a DMP.
Pros of DMPs
Consolidated Payments: Rather than juggling multiple payments with different due dates and amounts, a DMP allows you to combine your debts into one, simpler payment.
Help From a Professional: The credit counseling agency running your DMP can provide you with additional financial help, including free resources and workshops, budgeting assistance and advice on money management.
Potential to Have Lower Payments and Waived Fees: Credit counselors will negotiate with creditors on your behalf. Although they won’t be able to lower the principal balances on your enrolled accounts, credit counselors will attempt to lower your interest rates, reduce any additional fees and negotiate lower monthly payments.
Cons of DMPs
You’ll Still Have to Pay Back Your Debt in Full: Credit counselors may be able to reduce your interest rates or break your debt into smaller payments, but it’s likely that your principal balances will not change. Debt resolution programs are great alternatives, as they may be able to lower your principal balances by as much as 50%.
Will Show Up On Your Credit Report: Although the fact that you’re participating in a DMP does not directly affect your credit score, creditors will be able to see that you’re making payments through a third party. Some lenders may interpret this as a red flag. You may be asked to close credit cards as part of the DMP, and that action can decrease your available credit and lower your credit score.
Unsecured Debt Only: Debts tied to collateral and some types of unsecured debts, like some student loan debt, are not eligible to be enrolled in a DMP. On the other hand, medical debt relief may be an option.
Limited Access to Credit: Depending on the terms of your DMP, you may be asked to close enrolled credit cards. You may also be required to stop using credit cards that aren’t part of the DMP while you’re in the program.
You're paying too much interest or are stuck making only minimum payments
One or more of your credit cards are maxed out or your credit utilization is over 40%
You miss payments or you can’t afford both your monthly payments and basic needs
Your debt is worsening your quality of life, physically or mentally
Many with debt could benefit from the help of a DMP, but these plans aren’t for everyone. If you don’t have a steady stream of income that can cover a monthly DMP payment, or if you need access to credit within the next few years, it might be better to choose a different debt relief option.
When searching for debt management solutions, it’s important to do your research and select an accredited organization to work with. Debt relief providers who are part of the American Fair Credit Council (AFCC) or the National Foundation for Credit Counseling (NFCC) adhere to strict standards and regular audits. You should also look for organizations that are in good standing with the Better Business Bureau.
Accredited Debt Relief provides financial services to individuals throughout the U.S. Our Certified Debt Specialists can help you better manage your debt by providing you debt relief options that best fit your needs, allowing you to reduce your debt sooner. Contact us today for more information.
Accredited Debt Relief has helped customers across the country consolidate and resolve their debts. With an A+ BBB rating, we offer customized financial solutions that can help you pay off your debt obligations quicker. Our experienced team can help lower your monthly payments and reduce what you owe overall. To learn more and receive a free, no obligation consultation, contact us today.
Enrolled Debt: $43,922
Final Debt: $21,403
Enrolled Debt: $21,974
Final Debt: $12,797
Enrolled Debt: $24,954
Final Debt: $10,634
* These examples do not include program fees. This is small sample of debt settlements our negotiation team has achieved for our clients. These settlements were obtained for clients who successfully met all of their program terms and received settlement offers. Results may vary, and there are no guarantees that all creditors will agree to settle. These examples are not representative of results in all cases.
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