Debt management plans are meant to deal with a few, simple, small, unsecured debts. While a debt management plan can help if you have a few small credit card debts, a small bank loan or some unpaid bills, DMPs cannot settle complex debts including tax debts and student loans.
What exactly is a Debt Management Plan?
A debt management plan is a service or programme offered by a credit counselling firm to help people pay off their debts. It’s a strategy for paying off your obligations in full over a five-year period.
A non-profit credit counselling agency “pools” your unsecured obligations in a debt management plan so that you just have to make one monthly payment. After that, the agency divides your payment among your creditors, with the larger creditors receiving a larger share of the payment.
What can a Debt Management Plan help you with?
Debt management programmes are for people who can afford to pay off all of their debts in full but don’t qualify for a debt consolidation loan and would benefit from a set payment schedule.
Benefits of a Debt Management Strategy:
- Put an end to the collection calls.
- A single monthly payment
- Reduced or no interest costs
- It is a voluntary method where you choose to begin the process.
Disadvantages of a Debt Management Plan
For everyone, a debt management plan is not the best way to get out of debt. Here are a few reasons why you may want to look into other debt reduction options.
- You must settle all of your debts in full.
- Creditors are not legally bound by a debt management plan.
- It is unable to handle all debts.
- Your credit report will include a remark.
A debt management plan will not help you get out of debt. You must pay off all of your debts in full. If you need to get out of debt, a consumer proposal is a good option.
Effect of a Debt Management Plan on your Credit Score
An R7 note that you have gone into a debt payback programme will appear on your record for 2 to 3 years from the date the programme was satisfied or six years after you defaulted on the loan, whichever comes first, when you file a debt management plan.
Many consumers are startled to learn that a debt management plan affects their credit report in the same way that a consumer proposal does. A consumer proposal, on the other hand, offers one significant advantage over a DMP: your monthly payments will be far cheaper. This means that if you file a consumer proposal, you will be able to recover sooner because you will be able to save more money.
Get Help
In most cases, your payments will be much lower under a consumer proposal than they would be under a debt management plan.
We recommend speaking with one of our consultants about a free, no-obligation debt assessment to help you identify which plan is right for you. Contact us at [email protected] to know more.
Disclaimer: Canadian-debtrelief.com is a debt consultancy service, we are not an authorized blogsite and are only advisors providing you with the tools and information to help you get out of debt.
