Managing large amounts of debt is tough, confusing and stressful. A debt management plan (DMP) is one way of making sure you pay off those credit card bills as quickly as possible. With a DMP, you submit one monthly payment to a credit counseling agency that breaks it up and pays each bill for you. A DMP reduces the amount of time it will take to pay back your unsecured debt. If you're also a college student who needs financial aid to pay for your education, a DMP won't necessarily prevent you from getting your fair share.
What a DMP Is
Let's say you've made a few mistakes and find yourself buried in credit card debt. You know you can't possibly make all the minimum monthly payments. If you did you wouldn't be able to afford the basics, such as food, shelter, gas and clothes. A debt management program lowers your interest rates, reduces your payments and reports you as being on-time to credit bureaus, according to InCharge.org. Some credit card companies may note that you are enrolled in a debt management program on your credit report. You won't be able to make any charges on your credit cards or open up new ones.
Federal Aid Eligibility
Even if you enroll in a debt management program, you'll still qualify for federal financial aid. The government doesn't look at your credit score or your report for grants, work study and most types of loans. You will be able to receive aid as long as you can provide proof of your U.S. citizenship, demonstrate financial need, and make satisfactory academic progress, according to the U.S. Department of Education. Federal PLUS student loans do require that you do not have an adverse credit history. If your debt management program fails to make payments for more than 90 days, you could end up being denied for a PLUS loan.
Private Student Loans
Private student loans come with a different set of rules, especially if you're on a debt management program. A bank may not approve you for a private student loan if your credit score is below 630, according to FinAid.org. Private lenders treat student loans as unsecured debt and may be more reluctant to give you money if they see negative information on your credit report. A small percentage of private student loan lenders may not pull your credit report. Instead, these lenders may look at your grade point average, major, and school reputation, according to FinAid.org.
Scholarships and Grants
Scholarships and grants are among the preferred forms of financial aid because repayment is not required. They are awarded on the basis of academic excellence, ambition, talent and personal characteristics. Because they are not loans, your credit rating isn't in question. Certain grants, including the Federal Pell Grant, do look at your income to determine whether you're eligible and for how much. Standard federal student aid eligibility guidelines apply to Pell grants, according to the U.S. Department of Education.
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