A Debt Management Plan is not the same as a Debt Management Program. Although both go by the same abbreviation DMP and the idea of both is pretty much the same. The only difference between a Debt Management Plan and a Debt Management Program is pretty self-explanatory.
A Debt Management Plan is your personal choice, and you are not legally obligated to follow it. However, a Debt Management Program is something you have enrolled yourself legally and are obligated to abide by the program rules.
Like Debt Management Programs, it is not easy to stick to a Debt Management Plan when there are numerous ways to cheat it. Unlike Debt Management programs, you are in complete control of the rules set by you and its flexibility according to your will.
However, there is no harm in trying to follow one by yourself. If you think you are determined enough to stick to it, then you must set up a reasonable plan as soon as possible. There are many Debt Management Plans online that you can take the help of, with your budget planning.
When do you need a Debt Management Plan online?
Any person may need a Debt Management Plan if they want to plan and organise their debts in an orderly fashion. Usually, the debts that we owe can slip our mind easily, especially when you are dealing with multiple debts.
For large scale businessmen who take out big amounts of loans from banks and independent creditors, it is almost an impossible task. To keep a mental note of all the loans that they owe and their repayment time periods is indeed a hefty task. Also, how much money they owe to which creditor, it is hard to keep a count.
But, even if it is just your credit card debts piling up, you may take the help of a Debt Management Plan online. If you decide that you are going to start paying them up in order to clear them, a proper DMP can help you.
Pros and Cons of a Debt Management Plan
The pros of a Debt Management plan are potentially far more than the cons it has. Further, you are no longer under the pressure of clearing your debt. Your creditors can no longer bother you by calling and asking you to make the payment.
However, it is totally up to oneself to weigh out the pros and cons of a debt management plan they have set up. The pros and cons depend on the particular financial situation that a person is currently at.
In general, setting up a Debt Management plan will make you learn about your spending habits. You will be able to figure out various ways to cut down on unnecessary expenses and save. Yes, a debt management plan will definitely get you used to a saving habit.
There is a considerable amount of money to be saved if you can successfully pull off a DMP. It will include you having to negotiate with the banks in order to reduce the interest rates for you. Resulting in a reduced amount of fees and eliminating a considerable amount of sum that you can now afford.
Once you start making regular payments, very naturally your creditors will stop calling you to ask for money. When they see that you are not missing any more payments, they will regain their trust in you. This is also going to improve your credit score which might have affected you by taking out large sums of loans.
When you start paying off your debts, a great deal of stress and anxiety is relieved off your shoulders.
Since you are opting for a debt management plan that is set up by yourself, then you will not be receiving free credit counselling. The non-profit agencies are always there to help you with your debt management planning. You will not be getting any help planning out your monthly budget to help you cut down the expenses.
So, you will have to make all the planning yourself and create a budget that takes care of all your necessities. They include obvious expenses like food, rent, transportation and other utilities.
Therefore, you have to calculate everything by yourself. It is important for you to make these calculations accurately. This will help you to see whether even after paying for all these necessities there is still any room left for paying the monthly debt.
If you are not conscientious enough then chances are that the DMP will not work out for you. One mistake can result in you drowning into more debts.
How to set up your own Debt Management Plan?
Adapting to a debt management plan will definitely affect you or your family in a certain way. However, you need to make sure that the problems do not go beyond a certain point, where it might end up affecting severely.
In order to set up your own debt management plan by yourself, you need to follow a strict set of steps very carefully and thoughtfully.
Follow these steps below in order to have a methodical approach towards your debt management planning.
Step 1: Plan using a Debt reduction Spreadsheet
There are many debt reduction spreadsheets available online to help people with their DMP without having to go to an agency. These spreadsheets are made ready for you and already prepared to calculate your debts in a simplified way. All you need to do is input your monthly expenses and accordingly, the spreadsheet will calculate your repayments.
The spreadsheet will have data organized according to unsecured debts by the name of your multiple creditors. It will also include the amount due, interest rate, monthly payment amount and the due date of your payment.
In another space in the spreadsheet, there will be a detailed section of all your monthly expenses. This will include your immediate expenses such as daily food, house rent, car payment, child care student loan payment if you have taken an educational loan, etc.
There will also be another section where it will contain a list of all your sources of income. From the monthly income, subtract the monthly expenses and that will be the extra savings that you need to use to pay off the debt.
Step 2: Negotiate the rates of interest with your creditor
It is very important to speak when you really need to or do not have too many choices to opt for. If you think your creditors are charging too much interest fee and the monthly interest rate is high, you should talk to them.
By talking it is meant that you must call your creditor and explain to them your problems so they can be a bit considerable towards you. Negotiate with your creditor by asking them to charge lower rates of interest so it becomes affordable for you to make the monthly payment.
Step 3: Look for ways to boost your income
There is no better way to pay off your debt other than finding news sources of income. It is always a good idea to grow your income and money. So, if you think you can pull off a temporary small scale business and benefit with whatever revenue that comes from there, then you should do so.
You can even take up odd jobs or part-time jobs like working at a dining or earning as a bartender. This will bring you extra money that you can use to pay off your unpaid debt.
Otherwise, there are other ways to get money like selling old items on OLX or eBay which also makes for a good start. Use this money to pay down the debt quicker by creating an emergency fund.
Step 4: Cut down on your overall monthly expenses
This should probably be the first point. There is nothing like limiting your overall expenses and cutting down on unnecessary expenditure. The first thing you should do is put your credit card away.
Make up your mind to not use it for a while till you pay off your debts. If you really want to be debt-free then it must come at the cost of some genuine efforts. Otherwise, if you continue to indulge in your spending habits then you will be back to where you were before you started a DWP.
Start tracking your daily expenses with your set up budget. There are a lot of money-saving budget apps that can help you with this. In fact, another way in which you can save and limit your expenses is by opting for cash always.
Just carry the amount of money in cash that you think you will require throughout the day. You must only use your cards when absolutely deemed necessary, for example, maybe during an emergency or something.
Frequently Asked Questions
Q. Is a Debt Management Plan suitable for you?
Ans. Anyone can opt for a Debt Management Plan if they are committed enough to follow it. However, sometimes even if you are not, you must adapt to a DMP, if you are on the verge of crossing your credit limit.
Q. Can anyone set up a DMP online?
Ans. Yes, it is possible for you to plan and arrange your own repayment methods with your creditors. In fact, you can even apply for a Debt Management Plan online.
Q. Does a Debt Management Plan or Program affect the credit file?
Ans. Yes, it almost always certainly affects your credit file. That is because with a DMP you are now paying less than the amount that you had agreed to pay when you took the debt. Although the details of your DWP is not specifically registered on your credit profile, there might still be other details like your default payments or missed payments, court action etc. This detail is going to be there on your credit profile up to a period of six years.
Q. Is DMP the same as Debt consolidation?
Ans. No, a Debt Management Plan is not the same as debt consolidation. However, debt consolidation could be a part of a Debt Management Plan. Debt consolidation includes taking out a larger amount of loan to pay off your smaller loans. But, a Debt Management Plan does not involve taking out any more loans but pay off with whatever is left with you.