It’s easy to fall behind on credit card debt. Interest rates and late payment fees can keep one in a cycle of debt that feels like running on a treadmill with no end in sight. As a result, many people turn to a non-profit credit counseling service to get on a Debt Management Program (DMP).
These programs work with creditors to convert every credit card payment into one monthly payment, slashing interest rates so individuals can get the debt relief they need. It even has a positive effect on credit reports and credit scores, as the debts will be repaid in full and on time.
Keep these dos and don’ts in mind during the debt management program to ensure the process goes smoothly.
Do: Determine The Right Course Of Action
There are many reasons to pursue a debt management program. They allow individuals to make one monthly payment, reducing the stress of tracking multiple accounts. Additionally, they’ll work with creditors on behalf of the individual. Credit counselors may also be able to get you lower monthly payments, have fees waived, get interest rates reduced, and clear up the debt quickly.
Despite these benefits, DMPs aren’t right for everyone. The biggest downside of signing up for a DMP is a lack of access to additional credit. Individuals will have to close all credit cards that are part of the DMP and may be barred from using cards that aren’t part of it. If someone is dependent on credit then a DMP is going to be almost impossible for them.
Get Started With a Free Debt Analysis
We make it easy on mobile or desktop. FREE with no obligations.
Don’t: Pay Your DMP Before Priority Debts
A priority debt is associated with everything that provides essential services. Rent, mortgage, and utility bills are examples of priority debts.
Priority debts should always be paid first. Ignoring these debts in favor of paying off the DMP could lead one to dire straits like being foreclosed upon or having your gas shut off.
A DMP provider should be able to keep unsecured debts manageable while allowing one to still be able to make all necessary monthly payments. The point of joining these programs is that they allow individuals to pay out-of-control debts without having to make massive sacrifices.
Do: Report All Debts In The DMP
It’s imperative that all debts be reported in the DMP. Creditors are much more likely to respect the program if all debts are included. However, it should be noted that DMPs are typically only for unsecured debt. Secured debts, debts like car loans and student loans, are not included in the plan.
Don’t: Make Extra Payments
Although it may be tempting if there’s extra money lying around, never make additional payments to creditors after signing up for a DMP. This could lead creditors to believe that the DMP does not accurately reflect the debtor’s budget and that they may have more money than they imply.
If a debtor can afford to make higher payments, the credit counselor may be able to raise the monthly payment so the debt gets paid down sooner. However, stick to the original payment schedule for your DMP.
Do: Stick To The Budget
Having a strict budget is the surest way to find success while on a DMP. It shouldn’t just be a monthly budget either, although it’s easiest to stick to a monthly plan. Try to plan ahead as far as possible, even setting sights on the year ahead. Another example is instead of going out for dinner and a movie every week, go out for dinner and a movie once every other month, or make plans for a nice dinner at home, followed by a movie rental with popcorn in your living room.
Don’t: Continue To Accrue Debt
In many cases, like opening a new credit card, it may simply not be an option. However, some DMPs allow individuals to get things like auto loans, student loans, and home loans. Avoid these at all costs and stick to paying the monthly debt program payment. Your credit score should see a nice increase at the end of your DMP and this will help lower your interest rates for new loans.
Of course, sometimes it’s necessary to take on more debt. Have a conversion with the credit counseling agency, and they’ll be able to make appropriate recommendations.
Do: Accept That It Will Take Time
Patience is key. After consistently making monthly payments and showing signs of a valid budget, creditors should relax their seemingly endless pursuit of the debtor.
A DMP does not resolve debts overnight. It may take years before all debts are paid in full. Until then, it’s important to keep one’s head down and focused on the end goal.
Don’t: Get A Personal Loan or Payday Loan
Don’t sign for a mortgage or loan before reading everything, especially the fine print. If you don’t read the fine print, you may agree to a loan that has high interest or agree to an “interest only” type of payment. A Payday Loan is one of the worst things you can do to try and get out of debt. The super high interest rate and terms on Payday Loans make it almost impossible to ever pay them back in full and get out of them.
Do: Cutback On All Unnecessary Spending
Another important “Do” tip is to cut back on your spending. Sure, it’s tempting to max out on a credit card, but if you know you can’t pay it off when the next bill arrives, you shouldn’t be using it. Also, if you “Do” have credit card debt, pay it off as soon as you can. If you don’t, your interest rates will accumulate, and you will be paying off the debt for a very long time.
Don’t: Panic Or Lose Hope
Debt Management Programs are the first step in getting out from under a mountain of debt. Eventually, the debts will be paid, and all will be well again. Just keep the provider aware of any changes and continue to make payments on time every month.
In addition, always seek help if you need assistance with your debts. Talk with a certified credit counselor or financial adviser on how you can pay off your loans. There are many professional non-profit agencies that can help you make responsible decisions that will keep you on the right track.
