A debt management plan (DMP) is, as the name implies, a plan that allows you to manage your debts and get them paid down over time.
So you can avoid bankruptcy or foreclosure and rebuild your credit score.
Here are 7 steps to creating your own successful DMP.
1) Determine How Much You Owe
The first step in the process of creating your debt management plan is determining how much you owe.
You’ll need this information when it’s time to make monthly payments on your loans. The easiest way to find out how much you owe is by checking your credit report.
This will show you all the debts that are currently active and what they’re owed for. Once you know how much money you owe, divide it into categories such as student loans, personal loans, medical bills, etc.
It’s easier to stay organized and keep track of where your money is going each month. It might also be helpful to start keeping track of the different bills coming in so that you can pay them one at a time until everything has been paid off.
2) Create a Monthly Budget
In order to make your budget, you need to know how much money you earn per month and how much money you spend per month.
Next, compare the two numbers and subtract what you spend from what you earn.This number will tell you how much money is left over for paying off debts each month.
Make sure that this amount is enough to cover any bills or expenses that are due. If it isn’t, you may want to talk with a professional about changing your spending habits or try asking for more hours at work.
Once you’ve created this new budget, it’s time to set some goals: Which debts do I want to pay off the quickest?
How much of my income should go towards paying them?
What can I do now to start chipping away at those balances?
3) Decide on a Payment Method
Some people decide that they want to pay off their debt as quickly as possible, while others just want the minimum amount due each month.
It’s up to you which one you choose, but make sure it’s something that will work for you and your budget.
Once you’ve determined what works best for you, move onto the next step:
Find Out What Your Current Debts are:
First thing you need to do is find out what debts you have by looking at your credit report and statements.
Next, calculate how much money you can put towards your monthly payments with both of these sources of income combined.
Then, total up all of your monthly expenses like car insurance, rent/mortgage, etc., so that you know how much disposable income (money left over after paying bills) you have per month.
4) Choose a Debt Repayment Strategy
One of the most important parts of a debt management plan is deciding which repayment strategy will be right for you and your situation.
One way is to pay off the loan with the highest interest rate first. Another way is to pick the loan with the lowest balance first and work your way up.
You may also want to consider whether or not you would like any extra money left over after paying off your loans, such as if you have other debts that need attention.
The different types of debt repayment strategies are:
• Paying off the loan with the highest interest rate first
• Paying off the loan with the lowest balance first and working your way up
• Taking all available funds each month to apply to high-interest loans until they are paid in full
• Choosing what to do with any extra money leftover at the end (like use it on low-interest loans)
5) Set a Goal Date for Being Debt-Free
In order to have a successful debt management plan, you need to set a goal date for being debt-free.
It may be hard, but it’s worth it in the end. Even if you can’t get out of your debts all at once, setting a deadline will help you stay motivated and on track with your progress.
Write down your goal date and the amount of money that needs to be saved each month so that by the time your deadline arrives, you’ll have enough cash saved up to cover what’s owed on day one.
If you’re aiming for a $10,000 balance to pay off before retirement age (65), then save $400 per month from now until retirement.
6) Get Started on Your Debt Management Plan
A debt management plan is an agreement you make with your creditors and usually your financial institution, where you agree to repay your debts over time.
This program typically lasts anywhere from three months to five years, depending on the amount of money you owe and the interest rates on that debt.
When deciding whether or not it’s right for you, consider what is most important: paying off your debts as quickly as possible or reducing the number of monthly payments?
If your goal is to pay off all your debts more quickly, then this might not be the best option for you because your monthly payment will be higher than if you just paid the minimum due.
However, if reducing the number of payments each month means less stress in other areas of life (e.g., making car or mortgage payments), then a debt management plan may be worthwhile for you!
7) Monitor Your Progress
Monitor your progress by reviewing your budget every month and making adjustments as needed.
This will help you see how much money you have left and what your financial priorities are.
For example, if you want to pay off debt faster, spend less on food or entertainment.
Or if you don’t want to take out any more loans in the future, cut back on how much you’re spending at the grocery store.
Reviewing your budget is an important step in creating a successful plan. You’ll be able to see how much money you have leftover each month and what your priorities are.
If you want to pay off debt faster, then spend less on things like food and entertainment.
And if you want to avoid taking out any new loans in the future, then make changes like cutting back on groceries.