Many people fall into heavy debt each year. On average, about 80% of Americans are in debt. This totals up to roughly, $870 billion owed in American debt. Whether they are dealing with increasing bills, insufficient income, an unforeseen challenge, or lost their job, it can be disheartening to watch interest grow and your finances deplete. Some options available to people who are struggling with debt include debt merging loans, refinancing loans, debt credit counseling, and debt settlement services.
Debt management plans, Main credit counseling services
Many organizations offer credit counseling facilities, also known as DMP (Debt Management Plans). However, not all these organizations have a nonprofit or public entity. Some self-governing agencies offer credit services as well. These include credit unions, military bases, and universities. Some for-profit banks also offer such credit counseling options. Do a little research to see which option is available for your situation.
Many Americans turn to credit counseling to get a debt management plan (DMP), so they can pay off their unmanageable debt. A debt management plan is a contract between a person and their credit counselor that binds them to pay all the debts within a specific time frame. Think of it as a payment plan that consolidates your debt and allows you to pay it off more efficiently. Making timely payments can also have a dramatic effect on your credit score.
Determine if a debt management plan is right for you
DMP is not for everyone. However, the budget advice provided by reputable credit counseling agencies is widely applicable, even if you do not have serious debts. Sitting down and speaking with someone who understands personal finances can be useful to you even if you are just living paycheck-to-paycheck but have not yet fallen into a vicious circle of unpaid obligations.
Cannot commit long term?
To be effective, a DMP requires a person to maintain discipline. When their counselor presents them with a modified budget to pay their debt off and start to save for their future, it is imperative that the plan is followed and not abandoned for old habits.
Getting out of the debt takes a lot of time and requires some sacrifices, such as the following:
- Reduce non-essential expenditures, such as restaurant meals
- Reduce or eliminate costly habits, such as smoking/ drinking
- Eliminating needless shopping purchases online
- Exchanging a newer and more expensive vehicle for one with a lower payment (or reducing the number of vehicles in your home from two to one)
- Save cash on groceries by purchasing generic foods
- Taking fewer pleasure trips or vacations
With the help of proper discipline, such changes do not have to be permanent; however, they can be essential to solving your constant debt problems.
Would a substitute be better?
If you have uncontrollable debts, a DMP may not be the smartest solution. If the main problem is a crippling mortgage, a car loan, or other protected obligation, speak directly with your lender regarding refinancing choices that could reduce your monthly expenditures without forcing you to default.
As an alternative, just employ the benefits of your credit counselor’s planning and budget services. They cannot pay your debts for you, but they may be able to give you a new look at personal finances.
However, it is crucial to know when a debt management plan is one of the best other options. If you are behind on credit card payments or you cannot find more money to reduce debt, a DMP might be your way out of the debt and on towards financial freedom.
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