Debt Management plan is basically a debt clearance plan, carried out by the borrower, which is agreed upon by both the debtor and the creditor. This is usually designed and arranged by the Debt Management Company. DMP is an effective way to consolidate your entire debt amount. You can repay them in affordable monthly installments to the debt management company you are working with. They will in turn distribute your funds to the separate creditors.

The duration of a DMP depends on the amount and type of debt you owe and the monthly installment that you can afford. However, normally it takes about 3-5 years. If a person agrees to make bigger deposits every month, it is most likely that he will become debt free in a shorter time. He may even end up paying a lesser amount if he can pay off quickly. A prolonged payment plan is never advised by a consultant. Nevertheless, if an individual is unable to pay large sums of money in his monthly installments, he will have to follow the prolonged payment plan.

Usually the Debt Management companies offer you free service. Instead they earn their service charges from the creditors. The consultant gets a small portion of the total amount that the debtor returns to the creditor. This is the only service charge that a debt consultant gets. Apart from this there is no other charge involved.

The process may seem complex to those who are new to the various details of debt repayment. However, if you seek the help of a debt management company, they will guide you through the complete process in a sequential manner.

Step 1: Approach a Debt Management/ Debt Consolidation Company.

Step 2: Ask them to help you come up with a debt management plan.

Step 3: Your credit consultant will consolidate your multiple debt amounts into one single debt amount.

Step 4: Once the debt consultant takes charge he negotiates with the creditor on your behalf. In this process your late fees and other additional charges are eliminated and in most cases your interest rate is also reduced. You will now be offered an affordable payment plan. You actually save a lot of dollars in this process when compared to the amount you would have paid, if you had paid on your own.

Step 5: Your debt management company comes up with a repayment plan.

Step 6: Ask your consultant to negotiate the relevant credit ratings in your credit report.

Step 7: You should find ways of collecting the money required to pay your monthly deposits to your Debt Management Company. The consultant will guide you with the options available in your particular case.

Step 8: You make your monthly payments in due time and always follow your plan. Any disruption in your payments may prove to be detrimental to the entire process. A single late payment might however disrupt the entire repayment process and increase your debt burdens.

Step 9: The payments that you make to your debt consolidation company, will be accumulated in order to make the individual payments to your creditors.

Step 10: Check your credit reports to see if the payment details have been updated and the ratings changed in your favor. The creditor may not always agree to oblige you. However, your consultant will again prove to be useful, while providing for you a perfect credit rating.

The creditors usually agree to waive off a major portion of your debt amount if you can make fast payments. You will be required to make lump sum payments to your debt consultant, so that they can start paying off your creditors sooner.
The duration may be anytime between 4-12 months. If you think you can clear your debts by that time, your creditor may be willing to minimize your debt amount.

Debt consolidation has proven to be an effective and beneficial way of clearing your pending debt accounts and improve your credit scores. In order to have a decent credit score, your primary task is to clear your debts.

1. Debt Consolidation will help you to not get bankrupt with a consolidated monthly payment plan.
2. Your monthly payments will be within your affordable limits and in all probability be reduced by 40-60%.
3. You will be paying a lesser interest rate, and hence, in due course of time, you will pay a lesser amount.
4. The debt consultant will chalk out an effective repayment plan keeping in mind your present financial status. Following this plan carefully will make you debt free within a reasonable time period.
5. Under the debt consolidation program, you can avoid the hassle of paying individual creditors, since it will be handled by your debt consolidation company.
6. You will not be receiving any more collection calls, as your creditors are now convinced that you are making positive efforts to pay off your debts.
7. You will no longer have to confront your creditors who have been bothering you so long. Your debt consultant will take care of everything.
   

While going through a Debt Management Plan, one must remember two very essential factors:

• The debt management plan should be realistic; otherwise, it will never work. It is unique for for each individual.
• The debtor must be completely dedicated towards his payments. Consistency is of utmost importance. In its absence, the whole plan falls through and you are in more debt than you were before.