Understanding Debt Consolidation with a Debt Management Program

One of the options to obtain credit relief is by joining a debt management program. Should you choose to take this route, you will have a single monthly payment to make as agreed on the program. However, your creditors must agree to this arrangement before it takes effect. In most cases, the creditors agree to a debt management program that is recommended by a non-profit credit counseling organization.

What happens when you enroll in a debt management program?

To begin with, you should be able to pay off all your debt in a maximum of 5 years. Some people even manage to attain financial freedom within 3 months of enrolling into the program.

To determine if a debt management program is the right option for you, consider the factors below:

  • If you are struggling with unsecured debt which didn’t require any collateral when you were getting credit then a DMP is right for you.
  • Is your debt more than 20% of your income? This means that it’s likely to take you a long time to clear it and manage your day-to-day expenses.
  • Are your creditors constantly harassing you? Pressure from creditors can get overwhelming and a DMP can help you to relieve this burden.

What types of credit can you consolidate with a DMP?

There are certain types of debt that a DMP is good for:

  • High-interest credit card debt
  • Unsecured personal loans debt
  • Unsecured credit unions loan
  • Motor vehicle debt when you’re almost facing repossession
  • Gas cards and other utility bills e.g. cell phone and utility bills
  • Medical bill debt

Advantages of a DMP

  • The ability to clear all your debt within less than 5 years means you can attain financial freedom faster and with fixed monthly repayments you can manage.
  • You will be charged little if any interest, which makes it one of the best debt consolidation methods out there.
  • You will repair your credit score after completion of the DMP.
  • You will get free one-on-one advice from a non-profit credit counseling organization, which helps you to not only clear the debt but also budget properly and save money.
  • No creditors knocking your door, which results in reduced stress levels, better sleep, improved relationships and overall quality of life.
  • It’s an ideal option if you don’t want drastic forms of debt relief like a legal process such as bankruptcy.
  • A DMP is completely private in Canada. There are no formal records that will remain in your report 2 years after completing the program.
  • You will only pay a monthly repayment that is agreed by your creditor (your credit counselor will ensure they only agree to a payment that you can afford). This gives you financial freedom even though you are in the program.

Disadvantages

  • A DMP is not for everyone. Your credit counselor must convince the creditors that this is the best option for you. Some refuse to agree to a DMP if they feel like you may qualify for another debt consolidation method.
  • For the entire duration of the DMP, your credit score will go down significantly.
  • If you are using a for-profit credit counseling company, expect to pay hefty fees for their services.

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