2961: What Is a Debt Management Plan and How Does It Work by Jackie Beck on Financial Planning

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[00:01:00] Das ist Optimal Finance Daily. Was ist eine Debt Management Plan und wie es funktioniert? By Jackie Beck von JackieBeck.com.

[00:01:10] Wenn du ein paar verschiedene Unsecured Dezungen hast, gibt es viele Möglichkeiten, wie Sie sie aufzahlen.

[00:01:15] Zum Beispiel, Sie haben eine Debt Management Plan oder DMP.

[00:01:20] Die Plan kann usually be used für credit card debt, small medical bills, und debts in collections.

[00:01:26] Ich habe eine Debt Management Plan.

[00:01:32] Das war für uns. Aber wenn ich dann weiß, was ich jetzt wissen, was ich jetzt wissen, würde ich wissen, was ich jetzt nicht mehr.

[00:01:40] Of course, Sie wissen, was Sie wissen, was Sie wissen.

[00:01:43] Was ist eine Debt Management Plan?

[00:01:46] Eine Debt Management Plan ist eine Plan für repaying Ihre creditors, das ist put together by eine Non-Profit.

[00:01:52] Die Non-Profit works mit Ihnen und Ihren creditors.

[00:01:55] In short, as part of this service, a financial counselor takes a look at your debts.

[00:02:01] The counselor works with you and the creditors that agree to take part.

[00:02:05] The counselor comes up with a plan for paying off your debts over a set period of time.

[00:02:10] You deposit money with a nonprofit and they handle making the payments for you.

[00:02:15] They may charge a monthly fee for being in the DMP and maybe a small setup fee too.

[00:02:21] Make sure you understand exactly what the costs will be and when you'll need to pay them.

[00:02:26] You shouldn't need to pay anything until they provide a service for you.

[00:02:30] How does a Debt Management Plan work?

[00:02:33] The process usually works like this.

[00:02:35] Number one, you make an appointment at one of the nonprofits that offer debt management plans.

[00:02:41] Your meeting might be in person, online, or over the phone.

[00:02:45] Number two, they'll ask about your household income, monthly expenses, budget if you have one, and your debts.

[00:02:52] So you'll need to have a list of your bills and monthly expenses, your pay stubs,

[00:02:56] and any recent statements from your credit cards and other debts on hand.

[00:03:01] Number three, they'll review your situation with you and come up with a plan.

[00:03:04] They'll base it on your credit report, budget, what you owe, and anything the places you owe money to may agree to do.

[00:03:12] If a creditor doesn't want to participate, they don't have to.

[00:03:16] But normally, you still have to include the debt in your plan.

[00:03:19] It'll probably take about an hour for this part.

[00:03:22] Number four, while you're in the Debt Management Plan,

[00:03:25] you make a single payment each month to the nonprofit in charge of the plan.

[00:03:30] Then they pay your creditors, who will know you're participating in the DMP.

[00:03:35] Number five, you're in charge of checking the statements from your debts each month to make sure everything gets applied correctly.

[00:03:42] As part of the plan, normally you'll have to close all of your credit cards and other lines of credit.

[00:03:47] So you aren't allowed to continue using your credit cards if you enroll in a debt management plan.

[00:03:53] You also aren't allowed to open any new ones while the plan is in effect.

[00:03:58] Pros and cons.

[00:04:00] Like everything, there are advantages and disadvantages to debt management plans.

[00:04:05] I have another post on my site for a detailed list of debt management plan pros and cons.

[00:04:11] But if you're just wondering if a debt management plan can affect your credit,

[00:04:16] the short answer is yes, it can.

[00:04:19] Is a debt management plan right for you?

[00:04:22] Of course it will depend on you.

[00:04:24] But in general, a debt management plan can be good for someone who

[00:04:29] wants someone else to come up with a plan,

[00:04:31] wants to know they'll be out of debt at a set time if they follow the plan,

[00:04:36] and prefers one monthly payment for a set period of time.

[00:04:40] If it's appealing to pay a fee to only have one monthly payment, it could be a fit.

[00:04:45] Especially if you're more concerned with getting out of debt period versus getting out of debt faster.

[00:04:50] How long a debt management plan lasts will vary.

[00:04:53] It depends on how much debt you have and how much you really can afford to pay.

[00:04:58] But it normally lasts several years.

[00:05:00] Ours lasted about three years.

[00:05:02] But they can last longer than that too.

[00:05:05] When is a debt management program not the best choice?

[00:05:09] It's probably not a good fit for someone who can easily make their monthly payments,

[00:05:14] wants to focus on one debt at a time or a particular debt first,

[00:05:18] and wants to pay things off as fast as they can.

[00:05:22] Sometimes slow and steady wins the race though.

[00:05:24] It really depends on your personality, money situation,

[00:05:28] and how good you are at sticking with things.

[00:05:31] Either way, it's a good idea to check out these common alternatives to a debt management plan.

[00:05:37] How to sign up for one.

[00:05:39] If you decide to go with a debt management plan, signing up for one is fairly easy.

[00:05:44] Start by searching for non-profits that offer them.

[00:05:47] National Foundation for Credit Counseling, CESI, and CCCS are a few.

[00:05:53] Check out their reviews, rates, and services for your state

[00:05:56] because it can vary depending on what office you go to.

[00:05:59] Then contact them for more info on how to enroll.

[00:06:02] You set up your meeting, make sure you're clear on things, and get started if it's a fit.

[00:06:07] The bottom line.

[00:06:09] Working with a non-profit to use a debt management plan lets you make one monthly payment for your consumer debts.

[00:06:15] It may cut interest and fees, but you may have to pay a monthly fee to take part.

[00:06:21] So you'll need to weigh the impact of using one for yourself.

[00:06:24] If you choose to go with one, make sure it's reputable.

[00:06:28] And be sure you understand what you have to do and what it'll cost before you agree to join.

[00:06:33] No matter what you decide, you'll need to make changes in your financial life

[00:06:37] to help make sure things go well in the future.

[00:06:40] Getting out of debt is a great step in the right direction.

[00:06:47] You just listened to the post titled,

[00:06:49] What is a Debt Management Plan and How Does It Work?

[00:06:52] by Jackie Beck of JackieBeck.com.

[00:06:55] And I'll be right back with my commentary.

[00:06:58] I think it's great that these kinds of services are available to help people get out of debt.

[00:07:02] And what stuck out to me about this article is how accountability with another person

[00:07:08] is sometimes all you need to keep you on track.

[00:07:11] I'm actually doing this with a friend right now.

[00:07:14] We spent about an hour coming up with a budget,

[00:07:17] looking at her outstanding debt and developing a debt repayment plan.

[00:07:21] And we have regular check-ins to talk about how she's tracking against her budget

[00:07:26] and celebrate the progress that she's making towards paying off her debt.

[00:07:29] We developed her debt payoff plan with a debt reduction calculator,

[00:07:34] and there are many free ones available online.

[00:07:37] What was great about this calculator is we simply entered all the debts,

[00:07:42] interest rates, minimum payments,

[00:07:43] and total amount she has available to throw at her debt each month.

[00:07:47] And the calculator does the work of plotting out the monthly payments

[00:07:52] based on the paydown strategy,

[00:07:54] which could be the avalanche method or snowball method.

[00:07:57] The avalanche method is fastest as you're paying off the highest interest debt first,

[00:08:03] but the snowball method can be helpful if you need some quick wins

[00:08:07] to strengthen your commitment to paying off debt.

[00:08:10] You can absolutely do what is being described in this article on your own,

[00:08:15] but it could be a more enjoyable process with a cheerleader by your side.

[00:08:20] So in addition to exploring your options with nonprofits and a debt management plan,

[00:08:25] consider if you have a friend in your life that might be able to offer some accountability.

[00:08:31] And that will do it for today.

[00:08:32] Have a great day and weekend.

[00:08:34] Thank you for listening.

[00:08:35] And I'll be back here tomorrow where your optimal life awaits.