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.
- 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.