Kentucky residents who are feeling overwhelmed by debt may have heard of debt management plans, but they may not be certain how they work or what they are. These plans are often used in order to help an individual debtor pay off his or her debts, normally over a period lasting around five years.
Such plans are often administered by credit counseling agencies, and participants in them usually must agree they will not obtain new credit during the payment plan period. Each month, a person who is enrolled in the plan deposits money that the agency then divides up between the person’s creditors.
Creditors may sometimes agree to lower interest rates for people who are participating in a debt management plan, as the creditors then feel the person is less likely to default on the money owed. When people are considering a debt management plan as an option, they should look for an agency that offers budgeting and financial counseling as services provided to participants. They should continue making their payments until the plan is approved by the creditors. If a creditor does not approve the plan, then the payment for that creditor will need to be made separately.
Debt management plans may be a good option for people who are able to afford the plan’s payments. People may want to carefully investigate the agency that is offering the debt management plan services in order to make certain it is reputable. Participation in such a plan may be a way through which the debtor can stop creditor harassment while also simultaneously paying off their debts over time. If a proposed debt management plan payment is not affordable, the debtor may want to consider an alternative such as filing bankruptcy in order to obtain relief from the overwhelming obligations.
Source: FindLaw, “What is a Debt Management Plan (DMP)?”, accessed on March 9, 2015