Tuesday, August 3, 2010

DMP or Debt Settlement

I been trying to figure out the best way to pay off my unsecured debt. I've been reading many blogs, books, online information, etc trying to get hands on as much data as possible. Really trying to make sure there isn't some secret way to pay off your debt that I'm just not aware of. Unless I've missed the special hand shake or hidden door at the library, it does not appear to be any magic trick to paying down your debt. There seems to be two programs out there, other then increasing your income and increasing your monthly payments (snowball payments) to pay down your debt.

The Debt Management Program - DMPs which you don't hear much about and the Debt Settlement programs, which your hear about almost every commercial break on the Radio and often on TV. Here's what I know about these programs.

The DMP is basically an assistant program offered by a agency most banks or credit unions have associations with reputable ones. Some will waived their fees if you go through your bank or credit union. The agency will work with your creditors to reduce the interest rate on your accounts and work out a repayment plan in 3-5 years. You in turn send your money to the agency and they paid your creditors. With the reduction in interest rate you can pay down you debt faster, applying more money to your principal balance each month. They key here is this is typically done with no additional income. You may be required to take some credit counseling. It may appear on your credit report that you are being assisted, but your accounts are paid on time and there is be on ill effect on you credit report.

The Debt Settlement program is offered by an agency who will negotiate with your creditors to reduce your overall debt by a percentage. How much may vary on how well they can negotiate, there claim is up to 60%. You must pay the creditor back in a lump sum. You will pay the agency a monthly payment and they will build it in a fund until you have enough to pay off the first creditor. The process will be repeated for each. The downside is that as they build that fund for the lump sum payment, you are not making your regularly scheduled monthly payment and that is reported on your credit report. The agency also charges you a fee in some cased 15% of your debt settlement. They will also work out a 3-5 year repayment plan.

This is a very general, quick overview of the two programs. Has anyone had any direct experience with either of these type of programs? Any other tricks, tips I've missed?

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