A well constructed debt management plan (DMP) can help you achieve financial freedom. It is actually a bit similar to what a budget plan can do for you. It will provide you with an overview of your debts and how you plan on paying it off.
The best way to create a DMP is with the help of a debt counselor. After all, it did originate from the debt management program that includes a counselor. But if you want to create one for yourself without bothering with the minimal $30 – $50 monthly service fee, then here are some tips to help you create your plan.
You begin by knowing your budget. Ideally, all debt relief options should include a budget plan that will help teach the debtor the right financial management skills that will get them out of debt faster. It will also help them develop the right skills and practices to keep them out of it. But the major benefit of this plan is to give you an idea of how much income you have and where every penny goes. As you create your income and expense list, you will have an idea just how much you can afford to pay off your creditors. An important entry that you should never forget to include here is your savings. It is vital for your financial security to build up at least 3 months of your reserves. Later on, we will discuss why.
A debt management plan will aim to control your debt payments so every debt is satisfied. Even if your disposable income is not enough to cover the monthly minimum payments (e.g. credit card debts), you try to assign a certain amount and stretch it out over 2-5 years and see when you can finish off the payments. If the time is not enough because you can only contribute so little for each debt, you should probably look for a debt relief option that can reduce your overall debt balance. But if this is unnecessary, you can proceed to the next step.
As you identify the payment term for each debt, muster the courage to contact your creditors to negotiate this with them. Mention that you have every intention of paying off your dues but your limited resources cannot afford it. Show them your debt management plan and the term by which you intend of completely paying off your debts.
If they agree to lower your monthly dues in exchange for a longer term, start paying off your debts based on your DMP. It is very important for you not to miss any payments. This is where your reserves will come into play. Since we have no control over the future, it literally pays to have a backup fund that will help you reach your goals. It will help you keep up with payments even if the car suddenly broke down and it needs fixing or someone got sick in the family. These immediate and unexpected expenses can ruin your DMP and thus lose your chance of completing it if you ever miss a payment.
You should also keep yourself from growing your debts as you pay off what you currently owe. At least, do this if you do not want to extend your DMP further.