Reduced Financial Flexibility

Without a financial buffer, any unexpected expense—a car repair, medical bill, or period of unemployment—forces individuals to rely on high-interest credit cards, payday loans, or other forms of borrowing to survive, instantly creating or worsening debt.

The two primary methods are the debt avalanche and the debt snowball. The avalanche method prioritizes paying off debts with the highest interest rates first, while the snowball method prioritizes paying off the smallest balances first.

DMPs primarily include unsecured debt like credit cards, personal loans, medical bills, and some private student loans. Secured debts like mortgages or auto loans, and most federal student loans, cannot be included.

A financial hardship program is a temporary arrangement offered by a creditor or loan servicer that provides modified payment terms to borrowers experiencing a legitimate financial difficulty, such as job loss, medical emergency, or military deployment.