Managing finances can be frustrating for many Tennessee residents. Some people have to spend more money than they make, due to low-paying jobs or unexpected expenses, and others simply aren't good with money. These situations can cause significant credit card debt. The first step to managing debt is seeking assistance from a credit counselor. When this doesn't work, many consumers may consider a Debt Management Plan (DMP.) Read on to learn more about this option.
A DMP helps consumers with credit-related decisions, such as determining payment amounts and figuring out which credit cards to pay down first. Every month, the consumer gives money to the organization handling the DMP and the money is distributed to creditors. DMPs can be used to pay for student loans, credit cards and other unsecured loans. In exchange for using a DMP rather than defaulting on the loan altogether, creditors may lower interest rates or waive fees.
However, there are some disadvantages to using a DMP. Many can take up to five years to complete. Also, consumers cannot open new lines of credit while under a DMP. This can be challenging if a person is looking to buy a car in the near future. Plus, some organizations are known for being dishonest, so it's important for consumers to find a company they trust and get everything in writing.
DMPs can help avoid bankruptcy, while aiding consumers in creating a budget and adopting better money management skills. However, not all creditors accept this plan and if not implemented properly, late payments, fees and lowered credit scores can result. It's important for consumers to ask credit counseling organizations the right questions.
Source: FindLaw, "What is a Debt Management Plan (DMP)?," accessed April 19, 2015