Debt Management 101
When you’re dealing with debt, you may feel like there’s nowhere to turn and that your financial future is bleak. You can get yourself back on track and work towards paying down debt by reaching out for help and by learning about what debt options you have available to you. One such option is a debt management program (DMP).
Not all debt relief options are one-size-fits all though. Here are the basics about how debt management programs work and how you can determine if debt management is the debt solution that works for you.
When Would I consider a Debt Management Program?
If you’re still keen to restore your credit to good standing, but aren’t able to qualify to consolidate your debts through your bank or financial institution, a debt management program may be a viable option for you. If you’ve been told that your credit score is too low or that your income won’t support a loan payment, think about a DMP because it can help erase your debts within your budget.
When you’re trying to decide what the best course of action is, call us at 1-844-402-3073 to speak with a credit counsellor. You can discuss your situation and move through some of the initial criteria at no charge to see if this is the right debt solution for you.
How a Debt Management Program Works
As a first step, you meet with a trained credit counsellor who will work with you to assess your debt situation, including how much debt you owe and what your income is. Your credit score will not factor into the criteria, as it would through your lender for a consolidation loan. Once it’s determined that this is a good debt relief solution for you, your credit counsellor contacts your creditors and negotiates your interest charges so they’re reduced or removed altogether. As part of this process, your creditors must agree to include their debt as part of your DMP.
Finally, you set up monthly payments with the assistance of your credit counsellor. You make a single payment to the agency that you’re working with, and they distribute the payments out to your creditors. In most cases your debt is repaid within 30-60 months.
Manage Your Expectations
It can help your success and ease your nerves if you know what you can expect with a DMP. Prior to enrollment, you select your credit counselling agency, where they will assess your debt for free and help you understand what all of your debt options are.
If a DMP is determined to be the best course of action and you enrol, in addition to working with your creditors, negotiating your interest rate and other costs down and arranging for payments, your credit counsellor will help you learn about budgeting and good money management. They will also work proactively with you to have a plan in advance if you aren’t able to make a payment.
Benefits of Debt Management Programs
Reset your credit
There are many benefits of participating in a DMP. One major benefit is the positive impact that it can potentially have on your credit history. If you are maxed out, or even over your credit limits, this will have a negative impact on your credit score. Making your payments on time and reducing the amount of debt you have outstanding (without incurring any more) will improve your credit profile. Paying off your debt, and starting fresh with a clean slate is the first step to credit rehabilitation. Over time, this will have a positive effect on your credit history, and help you to rebuild your credit score.
Another benefit of a DMP is that you can ultimately reduce your overall debt payment, which can make them more affordable within your budget. In fact, many people see a decrease in the amount that they’re paying out from anywhere between 30-50 per cent, depending on their situation. Simply put, the lower interest rate that your credit counsellor negotiates on your behalf means less money out of your pocket just to cover your interest charges, which is especially important with rates continuing to rise these days.
Simplify your life
Managing debt is stressful, but combining your debts into a DMP can get you organized and give you the tools you need to get rid of your debt and move on with your life. Instead of running around trying to pay and keep track of multiple bills, you can benefit from a single payment, which you can even arrange to come out of your account automatically through Consolidated Credit’s direct debit system.
Reduce your interest costs and penalty costs
Working with a trained credit counsellor means that you’ve got an ally on your side to help you productively tackle your debt. That means that they’ll work to negotiate your interest rates and other finance charges incurred because of late payments due to your substantial debt load. Typically, they work with you and with your creditors to get these late payments repaid in a short period of time (i.e. 3-5 payment cycles).
Being debt-free is within reach
As you move through your DMP, you’ll begin to see progress and be encouraged to achieve your goal and remain debt-free going forward. Organizing your debt through a DMP means that you’ll get out of debt faster. That means debt-free living, getting rid of debt stress and moving towards achieving your financial goals sooner than if you were struggling with debt on your own.
How to find a debt management program to suit your needs
Not all Debt Management Programs are equal. Firstly, make sure that you’re working with a not-for-profit agency, who will work to protect your best interests and not for their own profit. Fees and schedules should be roughly the same from one not-for-profit to another.
In choosing your credit counselling agency, it really comes down to finding a good fit. Use the three “R”s to make your choice: Reputation (how long has the agency been in business and what is their track record of success?), reliability (what do former clients say about them?) and resources (what support will they provide you to learn real-life skills to manage your money responsibly in the future?).
Can we help you get debt-free? Call one of our trained credit counsellors at 1-844-402-3073 today.