Debt management plans (DMP) consolidate your short term debts into one monthly payment. They also negotiate lower interest rates, enabling you to pay off your accounts usually in less than five years. Before you sign up with one of these companies, you want to investigate them to be sure they are legitimate. Services Offered A DMP company, also called debt consolidation, handles the accounting side of your bills. They work with your lenders to lower interest rates, pay your accounts, and then close accounts when appropriate. DMP are for short term debt, like credit cards and bills. They cannot reduce student or mortgage rates. However, you can reduce rates on these types of loans by refinancing them on your own. With a DBP company, all you do is make one payment to them and provide your financial information. Part of your monthly payment will include a small fee for each account handled by the debt consolidation company. Questions To Ask Before you submit your financial information to a DMP, investigate the company. One important question to ask is how long will it take to pay off your accounts. A reputable company will ask for lenders names and account balances, but not account numbers to make an estimate. They will then give you a specific date for each account. Since you have varying account balances, each account will have a different date. You should also know that rates are predetermined by creditors, so all DMP companies will get you the same low rate. You should also ask about fees. Most companies charge a small fee for each account handled. Companies that require a large fee up front that is refundable in part are banking on the fact that most people do not follow through with these plans. Other Credit Services If you are not sure debt consolidation is for you, sign up for credit counseling. Through an appointment over the phone, internet, or in-person, you can work with a counselor to come up with a financial plan for debt payment. They may suggest a DMP or consolidation your credit into one loan, usually a second mortgage. |
