A debt management plan (DMP) is a simple and effective way of clearing non-priority creditors. It not only helps a person in dealing with creditor harassment, which can be quite unpleasant and stressful, but also helps in reducing the financial difficulties and change things for the better. These plans are beneficial for people with high debts, as they can be used for paying personal unsecured debts. Debtors are provided with help and guidance to aid them in clearing debts without taking a loan. A debt management plan consolidates all the unsecured bad debt into one big debt and makes the payment affordable. How Can a Debt Management Plan Help You? A debt management plan provides debtors to pay an amount which is affordable. The debtor makes the payment to the debt management company, who distributes it to the creditors. The monthly payment is worked out after considering the income and expenditure and other factors that are related with the debt. A DMP works only on a particular group of non-priority debts like unsecured loans, store cards and credit cards debts, overdrafts, and personal loans. A debt management company does an assessment of factors like the income and the total liabilities which have to be paid off. It will re-negotiate the interest rates and the payments after considering the ability of the borrower to pay it back. A more realistic repayment plan is charted after working out the chances of the loan collection by the creditors. The money is deposited with debt management companies and is distributed among the non-priority creditors. Implementing a Debt Management Plan Debt management plans are about bringing in a third-party to enable a debt repayment through an arrangement with creditors. A debtor has the option of availing the use of a free creditor-sponsored debt management organization or a fee-charging debt management company. The creditors have the free will of accepting any terms of any proposal put forward on behalf of the debtor. An effective debt manager recognizes the need of the creditors and the affordability of the debtor and plan accordingly. They usually suggest a monthly repayment plan after taking into consideration the priority expenses and other needs of the debtor. The priority expenses of a debtor usually include the mortgage or rent of their living premise, the food expenses and the utilities expenditure. A review of the annual financial situation of the debtor is done to ensure the repayment amount is reasonably affordable. What is the Debt Management Company Fee? Debt management companies usually charge up-front fees, which is treated as an administration fee. They can also charge a percentage of the surplus that is left after the creditors are paid off. The fee-charging DMP company receives a larger fee, which is directly proportional to the amount to be paid to the creditors. These can result in the fee-charging DMP company making the debtor agree to a kind of arrangement, which is not in the debtor's interest. Sometimes, there are situations where the idea of bankruptcy looks like a better alternative, especially when the debts are large and the repayment extends into many years. Debtors do feel that the fees paid to the debt management companies could have been used to clear the debt if no fees were charged to the debtor. These fee-charging companies justify the fees with the enhanced support and administration services provided to the debtor along with the repayment plan. The fee-charging companies also provide creditor liaison departments to negotiate with the creditors directly. They can negotiate terms of stopping the interest and any other charges which increase the debt amount. Debts in a Debt Management Plan A debt management plan is used to deal with the debt that is covered in the plan and cannot be used for secured debts or priority expenses like mortgages, car hire purchase repayments, rent and utilities, which cannot be converted into monthly payment reductions. A wrong notion about debt management is that they affect the credit rating of a person directly, which is far from the truth as debt management plans are used mostly by people with highly damaged credit rating.