Easy Steps to Maximize Debt Management
If you’re considering dealing with your debts, it’s crucial to do it right. One common method is debt management, where you pay an agency who then distributes your payment to creditors. This can often lead to reduced interest rates and waived fees, helping you be debt free in about three to five years. Here are four simple tips if this is the path you choose.
1. Pick a Trustworthy Credit Counseling Agency
Your journey begins by choosing a credible credit counseling agency. Before committing, have a thorough discussion with them about your finances. They should only recommend a debt management plan (DMP) after this detailed assessment.
Look for agencies who are open about their information and services. Be cautious of agencies who ask for your personal info before revealing their own details.
2. Consider if a DMP Works for You
Even though a credit counselor might suggest a DMP, it’s up to you to decide if this is the best option. DMP is helpful if:
– Your unsecured debts make up 15-39% of your yearly income.
– You’ve a stable income and believe you can clear your debts within five years at a reduced interest rate.
– You are okay with not opening new credit lines while on the DMP.
However, if your unsecured debts are 40% or more of your yearly income, you might need a more thorough approach like debt settlement.
3. Be Aware of the Associated Fees
While a DMP might reduce your interest and fees, you’ll often need to pay a fee to participate. Usually, there are setup fees (around $30 to $50) and monthly fees (between $20 to $75). Fees can differ based on the agency and your location, and some people might be eligible for financial accommodations.
4. No More Credit Use
Throughout your DMP, you should avoid using credit. This means no opening new lines of credit or using your existing credit cards. If you don’t follow this, your creditors might cancel their offer to lower interest or waive fees.
Mastering debt management relies on picking a trustworthy agency, deciding if a DMP suits your financial circumstances, understanding the fees you’ll incur, and being ready to avoid credit use for three to five years.