Debt management program is a program usually all debt settlement companies offer. A debt management program by one of the best debt management companies can be a saviour when you are stuck in a lending rut.
Debt management program
This program is ideal for repaying unsecured debts including personal loan debt and credit card. It is important for you to understand that this debt management program is not for all types of debts. This program cannot help you in case of a car loan, mortgages and other secure loans. There are some unsecured loans such as student loans not qualifying for this program. This program may or may not work in case of medical loans. You can enroll in a program offered by the best debt management companies only when your loan qualifies for this program.
The debt management company you are working with first of all understands the entire financial situation. You will have to tell about every single debt you owe. After assessing your financial situation, the agency works with your creditors. The company and your creditors create a repayment plan that is in the best interest of all. This new repayment plan may include lower monthly payments, reduced interest rate and it might also include fee waiver. However, do not expect a cut in the balance you owe. This is not going to happen.
When the plan is materialized, you will have to make a monthly payment to the debt management company you are working with. It is now the responsibility of the company to make payments to the creditors as planned. In the majority of the debt management programs, you will have to make monthly payments for 3 to 5 years.
- Do not skip or delay a monthly payment. Your creditor might opt out of the program in this case. You will once again have to pay a higher fee, higher monthly payments and higher interest. You will once again get into the situation you were trying to escape.
- Apart from that, when you opt in a debt management program, usually you cannot apply for a new credit. You are allowed to do that after completion of the program.
- You will also have to close your account. You cannot make new purchases. However, there are some debt management programs allowing one credit card for emergencies.
- Opting in a debt management program also affects your credit. This impact greatly depends on the situation and your credit history.
Your credit report will contain a note stating that you have enrolled in a debt management program. This note is removed after the completion of the program. Don’t worry, this note is not going to affect your credit score.
It’s Impact on FICO score
A debt management plan impacts major scoring factors including payment history (35%), accounts owned (30%), new credit (10%), credit mix (10%) and credit history length (15%).
You will have to pay an upfront fee before starting a debt management plan. In addition to this, you will also have to pay a monthly fee.