“`html

Understanding Debt Management Plans with O1ne Mortgage

If you’re grappling with credit card debt, consider reaching out to a nonprofit credit counseling agency for professional assistance. Each individual’s situation is unique, but one potential solution is a debt management plan (DMP). While there may be setup and monthly fees, you could save money overall if the credit counselor helps you secure fee waivers and interest rate reductions.

What Is a Debt Management Plan?

A DMP is a debt consolidation and repayment strategy managed by a credit counselor on your behalf. Typically, you can include credit cards and sometimes other unsecured loans in the DMP, aiming to pay off the debts within three to five years. By negotiating lower interest rates or fee waivers, the counselor can help you save money and expedite debt repayment.

Credit counseling agencies offer more than just DMPs; they provide various financial education and assistance services. They can help you weigh the pros and cons and determine if a DMP is suitable for you.

How Does a Debt Management Plan Work?

While you can pursue debt consolidation and repayment strategies independently, enrolling in a DMP requires meeting with a certified credit counselor. Here’s a typical process:

• Find a credit counseling agency: Search for reputable local or national organizations through the National Foundation for Credit Counseling or the Financial Counseling Association of America.
• Meet with a credit counselor: During a free initial meeting, review your finances, budget, and goals. The counselor will present several options and discuss the pros and cons of a DMP.
• The counselor meets with your creditors: If you enroll in a DMP, the counselor will negotiate with your creditors to secure fee waivers, lower interest rates, or reduced minimum payments.
• Close your included accounts: You may need to close the credit cards included in your DMP and agree not to open or use credit cards while enrolled.
• Make a monthly payment to your counselor: You’ll make a monthly payment to the credit counseling agency, which will distribute the funds to your creditors. As you pay off cards, the extra money will go toward remaining debts faster.

According to Money Management International (MMI), about 24% of their clients choose to enroll in a DMP, and 76% of those who start a DMP complete their debt repayment plan. GreenPath, another national nonprofit credit counseling agency, reported that 59% of their clients successfully paid off their DMPs in 2022.

How Much Can You Save With a Debt Management Plan?

DMPs can help you save money by lowering interest rates, securing fee waivers, and adhering to a debt-payoff strategy. Although there are setup and monthly fees, the savings often outweigh the costs.

For example, repaying $18,000 in credit card debt with a 26% interest rate on your own versus using a DMP with an 8% interest rate can result in significant savings. Even with DMP fees, you could save almost $7,000 compared to paying off the debt independently.

Additional DMP Insights and Factors That Can Affect DMP Costs

Speaking with a credit counselor is the best way to determine if a DMP is right for you and how much you might save. Here are some additional insights:

• Setup and monthly fees: These can range from $33 for setup fees to $24 for monthly fees, as reported by MMI in 2022.
• Fee waivers: If you struggle to afford DMP fees, you might qualify for a waiver or reduction.
• Average debt: Many people start with about $18,000 in debt, often including multiple credit cards.
• Interest rate reductions: Rates can drop to around 7% to 10%, but each creditor may offer different rates.
• Completion time: Most DMPs are designed to be completed within three to five years. MMI’s clients who completed their DMPs in 2022 took under four years on average.

MMI also reported an average credit score increase of 90 points from the start to the end of a DMP, which can lead to significant savings.

Pros and Cons of Debt Management Plans

While DMPs can help some people save money, they may not be suitable for everyone. If you can’t afford to pay off your debts even with reduced interest rates, bankruptcy might be a last-resort option. Alternatively, you might manage other credit card payoff strategies on your own, such as a balance transfer card with a promotional 0% introductory rate.

Pros of DMPs

• Potentially lower interest rates
• Waived credit card fees
• Bring past-due accounts current
• Fewer monthly bills
• A structured plan with professional support

Cons of DMPs

• Only some debts are eligible
• Can’t use credit cards during the DMP
• Fees apply

Review your credit reports and debts to understand your financial situation better. Obtain a free credit report from Experian and examine your accounts with balances. Then, review your credit card and loan statements to determine your monthly payments and interest rates. This will help you compare different debt repayment strategies, including using a DMP.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. Our team is here to assist you with confidence and expertise.

“`