The debt management program was created with the intentions on helping consumers restructure their credit card debt, but keep their credit in good standing. Many often ask, what is a debt management plan (DMP). Well this plan works by consolidating all debts and in turn, works by paying down the balances down with the reduction of high interest rates. This is often done through a non-profit credit counseling agent, but can often be administered through for-profit entities as well. When entering a debt management program, consumers will have to put the accounts on hold as it is a requirement from the creditors in order to enter the actual program. Not all creditors accept this type of payment plan, so it is important to consult with a debt professional given you had interest in the actual program.
The average debt management plans can range from 24-48 months depending on the creditors, balances and interest rates. When entering this type of program, consumers will include all monthly obligations into one affordable payment. In summary, it’s almost as if receiving a debt consolidation loan, but it’s not a loan at all. Regardless of how many creditors a consumer has, that person will have one monthly payment which in turn will be distributed to the creditors each month but based on the new interest rates and revised terms set forth by the debt management company. Consumers will see that a vast majority of the newly setup minimum payment will go towards the actual balances and not towards interest rates and other finance charges. When considering debt management, it’s important to consult with only a reputable consumer credit counseling service that employ counselors who are certified and properly educated in credit card debt.
How a debt management plan can help
Long are the days to where banks would issue debt on realistic interest rates. The average American household has roughly fifteen thousand dollars in revolving debt with an average compound interest rate of at least nineteen percent. When making minimum payments on this high number which again is also compounded daily, it’s only common sense to realize that the balances are not moving and to seek help. However, many companies and banks tend to capitalize on consumer fears and problems through offering consolidation loans, mortgage loans, or even additional credit cards with zero percent interest rates. It’s extremely important to stay away from these scams, as they do not benefit the consumer in any way. When considering ways to get out from debt, the debt management plan is a wonderful program which works for the consumers benefit. When wanting to actually get out of debt and not put yourself further into it, this plan would do exactly that.
The debt management plans can help by several different methods. Many consumers often find that the minimum payments they make to the credit card companies are too high. What that consumer needs to understand, is that he or she should be making at least two or even three times the minimum required payment. Given this cannot be done, the consumer should give up completely as making the minimum payment on those high compound interest rate will often get that consumer no where. Debt management works to reduce the minimum payment which can free up funds on a month to month basis. Although some creditors may often request four percent for a minimum required payment, the debt management plans can often get it down to a number between two and three percent. According to FICO, debt management will not hurt your credit, which is also a huge benefit when looking for help. Unlike programs like debt settlement or even bankruptcy, the DMP will not hurt the consumers credit score.
In addition to the reduction of minimum payments, the creditors are often willing to reduce or even eliminate interest rates which is a huge plus for consumers wanting to get out of debt. By reducing interest rates, consumers will find that a huge percentage of the minimum payments will go towards the actual principal balances. When wanting to get out of debt, this is a huge plus and will often help consumers actually get out of debt.
Top 5 reasons why the debt management plans are popular
We often get asked why the debt management plans are so popular. In summary, our company will break down the top 5 reasons as to why the debt management plan is taking America by storm and how it can help consumers with high interest credit card debt.
First and foremost, the most popular reason consumers seek debt management is due to the reduction of minimum payments. With unemployment skyrocketing to nearly thirteen percent in 2011, consumers are finding it hard to make the minimum required payment. Although consumers should be paying two or three times the minimums, consumers can actually get a lower minimum payment and actually pay just that and see the balances go down. Although the payment is reduced, the payments have more impact on the balances due to the reduction of interest rates which we will discuss in the second most popular reason for the program.
The second most popular reason for the debt management plans, is interest. With the average interest rate at around nineteen percent or higher, consumers are finding it hard to apply the minimum payments they do make, towards the actual balances owed. When entering debt management, the third party companies work to reduce or possibly eliminate interest rates resulting in a vast majority of the newly revised minimum payment go towards the actual balances owed and not towards high interest rates. When making minimum payments, it’s important to understand that by doing so in this type of plan, consumers will see more going towards the actual balances owed due to the reduction of interest rates.
The third most reason people seek debt management, is due to the reduction of fees and charges. Creditors often charge outrageous fees whether they be monthly late fees, over the limit fees or even annual or other finance charges. These fees can easily add up to be over a hundred dollars per month, per creditor. When entering debt management consumers will have these fees reduced or even eliminated.
The fourth reason why consumers seek out a debt management plan is for the sole purpose of having one monthly payment. Although the average consumer tends to have around five revolving bills, some consumers tend to have as much as ten or even twenty or more. By having one monthly payment, consumers will be able to better manage their finances and in turn have less stress when making payments each month.
Finally, the last reason consumers tend to consolidate is for the duration reduction. For example, it takes an estimated two years for every thousand dollars owed. When going through with debt management, since consumers reduce the fees and interest, consumers will find that they will pay off the debt they owe in a matter of months as opposed to years. When going through with debt management, consumers will find a huge amount of the minimum payments go towards the actual balances owed which in turn help them pay off the debt in a fraction of the time compared to doing it on their own.
When wanting to consolidate debt, doing so through the debt management plan will often save consumers not only a great deal of time, but also money. These services are often available to consumers nationwide and to qualify for the plan consumers must have a combined balance of only three thousand dollars or more.
Why the debt management plan was created
The debt management plan was created to assist consumers in consolidating all monthly credit card debts into one payment. It’s a fact that consumers tend to make minimum payments almost indefinitely, on high minimum payments with interest rates in the high twenties. When consumers do this, they find that they will often remain in debt for tens of years. Since most consumers tend to do this, it’s only a matter of time until that consumer gives up and has no other choice but to file bankruptcy or stop paying in general. Since many consumers tend to do one of those, the birth of the debt management plans came into play.
The plan is administered by debt management providers but created by the creditors, in an attempt to revise the existing terms and conditions in the consumers existing agreement. When consumers go through with debt management, that consumer will consolidate all monthly obligations into one payment. In addition to this, that consumer will have a reduced interest rate and minimum payment which is also a key benefit in the plan. This program was created to help consumers avoid bankruptcy and to provide a goal of actually becoming debt free.
Deciding when to do the debt management plans
Most consumers whom have credit card debt tend to make only the minimum required payment. With the minimum payment being only three percent on average with interest rates in the high twenties, consumers will often find that a huge percentage of the minimum required payments will go towards finance charges and other forms of interest. When deciding when to do a debt management plan, it’s usually best to go with one if you feel as if the balances are not moving. Since most consumers fit this criteria, the odds of this program being in your best interest are extremely high. The debt management program is often best for consumers whom feel as if their balances are not moving. If you are looking for information on debt management plans in the UK, the Think Debt Advice web site may be useful. Consumers who are struggling with making minimum payments, are eligible for the plan.