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What to Know Before You Apply for Debt Relief

What to Know Before You Apply for Debt Relief

Debt Management Plans

If you’re working with a credit counselor or a debt relief program, one possibility they may suggest is a debt management plan. A debt management plan, or DMP, works like this:

  • You choose which debts to enroll in the program.
  • You make one single payment to the debt management plan each month.
  • That payment is distributed among your creditors, according to the terms of the plan.

Debt management plans are similar to debt consolidation, in that you only have one payment to make. But this type of debt relief program doesn’t require you to take out a loan or open a balance transfer credit card. And, depending on the program, you may be able to get your interest rate lowered or have certain fees waived.

Under the terms of a debt management plan, while you may receive more favorable interest rates or relief from fees, you still repay the entire principal amount owed.

Debt Settlement

Debt settlement is considered an option of last resort. It allows you to pay off debts for less than what’s owed. If your creditor agrees to a debt settlement, any remaining balance is canceled. (more…)

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