Debt management plans, otherwise
referred to as DMPs, are indispensable tools for effective credit
management and payment
of credit card and other unsecured debts. All
outstanding debts are documented; income and budgets are evaluated,
and ultimately, revised interest rates and debt payments are
negotiated with the respective lenders. Creditors will
more often than not, work with the debtor due to the realization
that there is a much higher probability that the debt will be
repaid if the monthly payments are set to realistic levels that
the debtor can truly afford.
Debt management plans are generally set up
by people in debt as informal agreements between the lenders
and themselves, usually with the help of either a free or fee-based
debt management or debt settlement company.
Any debt repayment terms that are proposed by the debt management
agency are accepted by the lender,
solely at the lender's discretion. A respectable debt service
is well aware of this and will work with the debtor and the creditor
so as to negotiate debt repayment terms that are realistic and
affordable for the debtor after all other financial priorities
(rent, mortgage, food, utilities) are taken care of.
Debt management companies will oftentimes charge
the client-debtor administrative fees in advance, usually a percentage
that is calculated from surplus money that is part of the repayment
terms between the debtor, creditor and the debt management or debt
settlement company. The actual amount of the fee that
is charged to the client-debtor by the debt management company
is directly proportional to the amount of the payment(s) that
the client-debtor is making; the greater the monthly payment
is, the greater the fee paid to the debt management company.
Caution is recommended in situations where the amount of debt
is very large and the realistic time to pay it off is exceptionally
long, i.e., many years. In this situation, it may be in the debtor's
better interest to consider the bankruptcy option.
As mentioned earlier, the fees that debt management/settlement
companies charge their debtor-clients are generally a percentage
amount that is calculated from the agreed-upon monthly payments.
One may argue that this money could be paid towards the respective
debt rather than been eaten up in fees, but it should be noted
that reputable debt management and debt
settlement companies
usually have liaisons with the various creditors based on years
of contact and negotiations. This often translates into benefits
such as the discontinuing of interest and other types of charges.
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