Wednesday, February 6, 2013

The Advantages and Disadvantages of DMPs

DMP is the acronym for debt management plan.

The Advantages and Disadvantages of DMPs
A debt management plan is a type of debt relief whereby payment plans are arranged with creditors in order to pay down (and pay off) existing debts.

The DMP is designed with respect to a realistic budget for the debtor in order that he or she will have no difficulties in making the payments.

It is common for credit counseling agencies to recommend a debt management plan as an alternative to filing for bankruptcy.

For some individuals, this type of plan is the best solution possible for their money concerns.

If you choose to go the debt management plan route then you will do so through a debt management company.

It is to the company that all of your payments will be made. There are advantages and disadvantages of choosing a debt management plan.

Here we explore both sides of DMPs.


Many people think of a debt management plan as a form of debt elimination when really it is a form of debt relief. Your debts are not erased but they are able to be more easily managed with the help of the plan.

When you have a DMP you no longer have to deal with your individual creditors. They will cease to call you to demand payments so harassment becomes a thing of the past. You no longer have to explain your situation to creditors or to ask for more time to pay your bills.

You only need to make one payment a month and that is to the debt management company. From there the company will distribute the money to each one of your creditors. In most cases, a debt management plan means that there is no longer any interest being charged on the debts you owe. You pay what you presently owe and no more.


Most debt management companies are only willing to take on clients who are making an adequate income as well as those who own their own homes. This helps to lessen the risk that the company must assume. You will be expected to supply a tremendous amount of information to the company you sign with. For some people this may seem like an invasion of privacy that they do not wish to pursue.

Debt management companies charge a selection of fees to their clients. The fees you are required to pay may end up being higher than what you expected. For example, most of these companies charge a fee that can run as high as $300.

They often require a deposit at the start of the DMP that is above and beyond the aforementioned fee. This can reduce the amount of money you are left with to pay your debts to creditors.

On top of these fees there is also an administration fee that the client is expected to pay each and every month. This fee covers the expense that the company incurs when they distribute the money owed to the creditors on a monthly basis. This fee varies from company to company but can be as high as $45 a month.

Before you sign with a debt management company it is very important that you find out what fees they will charge you. The more fees you are charged, the less money you will be left with for the main purpose of coming to them in the first place- the debt management plan.

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