For those who have had a setback, where life hasn’t gone as planned, debt can just be just another weight holding people back. Sometimes all it takes is having someone walk through your situation with you and show you where to cut costs, help create a budget and bring hope with a plan for a better financial future. A financial counseling session is a great first step toward reaching your goals.
Debt Management Plans are a tool offered by nonprofit credit counseling agencies as a means of getting you back on the road to a financially stable, debt-free life. Your dedicated financial counselor can also help you determine if entering into a debt management plan (DMP) is appropriate and if not lay out all your available options.
First, an NFCC certified financial counselor helps set up a voluntary agreement between you and your creditors. People who sign up for a DMP, make one lump payment each month to the nonprofit agency who then sends those funds directly to your creditors.
By participating in this type of debt management program, you may benefit from reduced or waived finance charges or fees, and experience fewer collection calls. When you work with an NFCC agency on a debt management program, your accounts are credited with 100 percent of the amount you send in. When you have completed your payments, the fact that you did repay your debt in full, and according to the plan, may help you re-establish credit. Having a set lower monthly payment, takes the pressure off of your budget and enables you to build your personal savings or even purchase your first home.
Participating in a debt management program won’t have any negative effect on your credit score. Though there will be a note in your credit report that says you’re enrolled in a debt management plan, it’s not something FICO uses when determining a credit score.
*In fact, certain aspects of a debt management plan have a positive impact on your credit score. Your timely payment history, which accounts for 35% of a FICO credit score, will positively impact the score as will the decline in the amount you owe, which makes up 30% of the score.
Because you are involved in a debt management plan, there won’t be any inquiries for new credit, which is 10% of the score. Opening a lot of new accounts in a short period of time has a negative effect on your score.
In the end, participating in a debt management plan will be a positive factor in terms of your credit.
Not all debt relief options are the same, especially when it comes to debt management plans and debt settlement offers.
In a few short years, I’ll be debt free and able to breathe again.