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DMP

Facts and Truth about Credit Counseling

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Have been worried about your debt? You are unable to pay off your liabilities and nightmares haunt you. We would like to tell you that no matter how badly you are covered up in debt, there remains hope. You always have options to deal with your crises. Now the question is which option to select. We will advise you make the right choice that suits best in your situation.

Truth about Credit Counseling

Following are the most common solutions people go for:

We shall focus on credit counseling today. Before you sign up for it, you should be aware of the following facts.

Introduction to Credit Counseling?

A credit counseling agency helps you to develop a plan. This is specifically known as a DMP or debt management plan.

Credit counseling agencies are non-profit agencies but be aware that it not necessary that they don’t charge you any fee. Their services may not be free always.

They help you develop a fair plan and they try to help you out by talking to your lenders to reduce the interest rates. They try to convince and negotiate better terms with your creditors. If you properly go according to the DMP, it’s quite possible that you recover from your debt crises in around five years.

Truth about Credit Counseling: Poor Success Rate

Sad news for people considering credit counseling: these debt management plans have a success rate of only 20% to 26%. This means only one out of five people actually complete their debt management plan.

Another noticeable thing is that mostly the people who have a reasonable amount of disposable income left at the end of each month are successful in getting out of debt through a DMP. This information is provided by the National Foundation for Credit Counseling themselves. A reason to this has been that the people started believing they can complete the plan themselves instead of continuing with a counseling agency.

Reasons for Poor Success Rate

There is no single and fixed reason why people generally fail to complete their debt management plans. The truth about credit counseling is that lenders offer only a limited amount of concessions during negotiations to the customers who go for credit counseling.

In easier words you can say that when people sign up for a debt management plan through credit counseling, they see that it cannot lower the debts to a significant amount, they are most likely to leave the 3 to 5 year plan.

What Does Credit Counseling Actually Offers You?

Such a lower success rate implies that credit counseling is useful for only few customers. This is because it all depends on the creditors. The debtor cannot call the shots. It’s the creditor who decides what concessions to offer. It is very rare that lenders will reduce your principle amount. We can categorize the offers by DMP into three parts:

  1. The counseling agencies are able to “re-age” their accounts
  2. They are able to lower the interest rates
  3. Late fee penalties can be eliminated or at least reduced.

Successful DMP Requires Discipline

A significant truth about credit counseling is that it requires the customer to have a fair amount of discipline. People get eager for results and they normally quit the program when there is no instant outcome.

A debt management plan wants you to quit using credit cards or take more debt until they complete their plan that is normally five years. Some people just don’t have discipline to handle such a program. They start taking more debt and can no longer make payment to their counseling agency and as a result they quit the program. This is a hard truth about credit counseling!

Other Options You Can Consider

Other options, as we mentioned earlier, are debt consolidation loans and chapter 7 bankruptcies. Both of them have better rates of completion especially the secured debt consolidation loans. The reason behind this is that these loans are secured by a valuable asset such as a house, property or a car.

Chapter 7 bankruptcy is also successful because there is no other alternative. Through bankruptcy, you can clear all your debts and keep safe your most essential assets.

The ugly truth about credit counseling makes you notice that debt settlement is a better alternative because it actually gets your debts reduced and people want results. Additionally, debt settlement consolidates your debts and it makes it easy for you to handle a single payment instead of multiple payments. Normally it take up to 2 to 3 years to clear your debts depending on the amount of debt. Learning about the truth of credit counseling, you must see why this is so.

Make your choice keeping in mind all factors so that you are able to manage your debt.

Create A Debt Management Plan For Debt Relief Success

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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.

Create A Debt Management Plan For Debt Relief SuccessYou 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.