Definition: A program or service typically offered by a third party organization, which works to help consumers consolidate unsecured debt. The program will often consolidate all monthly obligations into one payment. Once that payment is made each month, it is then redirected to the creditors to satisfy those debts. Many consumers often confuse the DMP for a loan, but it's not. Although it has similarities of a loan, it's a program that works to reduce minimum payments, interest rates, giving the consumer one monthly payment, while keeping the consumers credit in good standing.
Debt management is best defined as enrolling all unsecured credit card debt into one monthly payment. By doing this, the consumers is essentially consolidating. By doing this, this allows the consumer to have one monthly payment when trying to repay credit card debt. When looking for debt management help, it's always a good idea to know how the program works, facts and useful tips about the debt management services. Enrolling into a solution without knowing the full benefit of the program, can have disastrous effects. When considering these programs and speaking with an agent, always ask questions and do research. Hopefully through our tutorial and explanation of the services, we can help you have a better understanding of the program and how it can help lower minimum payments and interest rates.
3 steps to debt management help
Step 1: Look over your financial situation
The first step better managing your debt, is to look over your financial situation. It's important to analyze all income and expenses, then try and find a way to add more of that monthly income to credit card debt. When going through your finances, it's important to try and eliminate expenditures that are not necessary in everyday life. We often state that such expenses like premium channels on television or higher end electronic gadgets are not necessary. It's always a good idea to look over your financial situation in detail prior to considering debt management help. If you had a better grasp on your finances, you may not need the program. But then again, if you enrolled into the program you may be able to double up on the minimum payments resulting in debt freedom in a short period of time.
Step 2: Shred your credit cards
The second step to debt management, is shredding the credit cards. By doing this, consumers will remove the temptation of possibly running up more debt. It's a well known fact that most consumers use most of the allowed credit limit in the first thirty days of activating the credit cards. By shredding these cards, consumers will eliminate the possibility of running up more debt. If consumers consider debt management services, they will put the credit cards on hold preventing further usage. When the creditors lower the minimum payments and interest rates, this is a small request from the banks in order to help you, the consumer.
Step 3: Implement a plan
When consumers go through the above two steps, it's now time to implement a plan. It's often best to find whatever available income exists and try and put that money towards a strategy to reduce the total balances owed. The most popular solution to consumers, is the debt management plan. The debt management plan will help consumers reduce minimum payments and high interest rates. When consumers reduce these high APR's, consumers will see more of the minimum payments they do make, go towards the principal balances owed. These plans are designed to help consumers repay the debt, without having so much of the minimums go towards finance charges and complex interest rates.
A few facts about debt management services
The debt management services help consumers lower minimum payments and interest rates. Here are three facts when it comes to finding debt management help. These programs are well proven to help consumers get out of debt. When properly educated, consumers will know exactly what it is they would be enrolling into. Here are three common facts and misconceptions about the services provided in this program.
Fact # 1: The program will help lower minimum payments and interest
It's a well known fact that debt management will lower minimum payments and interest rates. Consumers often ask the question, how much would it reduce these figures though. This is a hard question to address really without getting a quote. Some creditors require an interest rate of one figure, whereas other creditors have different requirements. The fact of the matter is though, the average consumer has an interest rate in the high twenties. These programs almost always reduce the interest rate below ten percent.
Fact # 2: The program will not harm your credit
Consumers often think that if they enroll into a debt management program, that their credit would be destroyed. This is far from the case, as this type of program is the only program that will not harm a consumers credit rating. According to the FICO site, it clearly states "whether or not you are participating in a credit counseling of any kind".
Fact # 3: The debt management offers are not loans
A common misconception that we get, is that consumers confuse these types of services with that of a loan consolidation. When considering debt management, it's important to understand that although you are consolidating all your monthly obligations into one lump sum, it's not a loan. The debt management program works by giving the consumer one monthly payment, regardless of how many creditors he or she has. When that minimum payment is made each month, it is then redirected to the creditors by the non-profit to satisfy those debts. This is done until the balances eventually become zero, on a lower interest rate. So don't get confused when considering debt management, because this program is not a loan. Here is a link which will explain why you should avoid credit card debt consolidation loans.
The debt management services and how they work
When trying to find help with credit card debt, it's important to first go through the quoting process. This process will typically require the applicant to gather a copy of their bills. Once this has been done, the applicant will then need to speak with a professional in regards to their financial situation and debts owed. Given the applicant is happy with the quote, that applicant would then become enrolled. The third party management company, would then send proposals out to the creditors notifying them of the enrollment. Once the proposals are received back from the creditors, the new interest rates and minimum payments will reflect on the consumers statements. Each month, the consumer will then make a one lump sum payment to the third party management company and will no longer have to worry about the several different payments for all the different creditors they had. By doing this, the consumer will have less to worry about and start to get back on track financially. The process literally takes about thirty minutes by phone to go through the quoting process. After that, it should take about a week from the first creditor payment being made, until the creditors officially receive the proposals from the debt management provider. Unlike loan applications or other long drawn out situations, this process is fairly quick and won't result in much time from the consumer. You can also consider looking into services such as LifeLock, who keep a consistent eye on your personal information while in a debt management program.
The top 5 reasons why debt management is popular
The first most popular reason on why debt management is so popular, is due to the reduction of minimum payments. When paying on credit card debt, creditors can often want as much as four percent of the total balance for a minimum payment. With unemployment skyrocketing and wages decreasing, consumers will often find it hard to maintain the minimum payments, or pay two or three times the minimum payment which is what most should be doing. By enrolling into debt management services, consumers will be able to reduce minimum payments. The reduction of these high minimums is the most popular reason on why consumers pursue the program.
The second most popular reason on why debt management is so popular, is due to the reduction of high interest rates. With the average consumer interest rate hitting exceeding the high twenties, consumers often find themselves making minimum payments which don’t necessarily go towards the actual balances. When in a DMP, consumers will find that a majority of the minimum payment will go towards the actual principal balances. When entering this type of program, the average interest rate often becomes less than ten percent. When wanting to make minimum payments go towards the balances, reducing the interest rates is extremely important. When looking for debt management help, the reduction of interest rates is one of the most popular reasons why consumers look into it. The creditors usually have high interest rates and this program, works to have them reduced.
The third most popular reason on why this program is so popular to pay off debt is due to the reduction or even elimination of fees. Now although this is not guaranteed, some creditors will reduce or eliminate late fees after a few consecutive payments in the program. When wanting a majority of the minimum payments to go towards the actual balances owed, it’s extremely important to have these monthly fees reduced or possibly eliminated whenever possible. So many consumers are near the credit limits or possibly delinquent, having these fees reduced or eliminated is important.
The fourth reason consumers consider debt management, is because all monthly obligations are consolidated into one payment. Better known as the definition of consumer credit consolidation, bill management will consolidate all monthly bills into one lump sum. Each month when the minimum payment is due, the consumer would need to worry of one monthly payment, as opposed to several. When trying to minimize stress in ones life, consolidating all bills will work to accomplish that.
Finally and the fifth reason why consumers are looking into debt management services, is due to reducing the payoff length. When consumers make lower minimum payments with lower interest rates, it's only natural to find that a good percentage will go towards the principal balance. When this happens, consumers will pay off the debt in a fraction of the time. These top 5 benefits are the most popular reasons consumers pursue debt management.