A debt management plan (DMP) is probably not the perfect solution to your particular financial circumstances. But when you are having trouble paying your bills on time and your creditors keep calling you, the plan can offer you a debt relief option. If you cannot make your minimum monthly payments a debt management company can help you deal with your creditors.
Are you wondering whether you are a good candidate for a DMP? Read on to learn the advantages and the disadvantages of a debt management program first.
Debt Management Plan Pros
You will be able to consolidate all of your payments into one low monthly payment, which is a lot easier to handle and budget for than your earlier bill payments. No more using a consolidation loan to pay off all of your debts.
What’s more, another person managing your debt can give a great stress relief, save you money in the long run and avoid future late payment fees.
Debt Management Plan Cons
You still have to pay off all of your debts. With reduced monthly payments you will have to pay more in interest charges in the long run. Additionally, only unsecured loans such as personal loans, credit cards, and store card debts that are covered in the DMP. Secured debts such as car loans or mortgages are not included.
Your creditors are not obliged to agree with the plan. In fact, some might not accept your payment offer and continue to charge interest.
Late payments — either the company failed to make scheduled payments to your creditors or you failed to make payments to the company — are a big problem. You could incur late charges, lose the lower interest rates associated with the DMP and damage credit with “late” marks on your credit report.
Debt Management Plan and Debt Consolidation Program
Some debt consolidation companies try to get lenders to settle by withholding your payments to them, in the hope that the creditor will then be willing to settle for less. Consumers using their services have been surprised to find that even though they are sending off the checks each month, their balances are not going down and creditors continue to call.
Many debt management and credit counseling services do not do this with their debt management programs. They instead focus on slowly paying off your debt and try to get your creditors to work with them to lower interest rates and to perhaps settle for a lump sum payment if you have the money.
A debt management program is not right for you? If you are not a good candidate for a debt management plan or program, you can still get a consolidation loan to consolidate your debts. Alternatively, you may want to find another way to deal with your debt, such as a family loan, getting another job, or even, if all else fails, declaring bankruptcy.