Debt management program is a plan recommended by debt management companies if you have too much debt and you are unable to pay off the debts by yourself. With the many advertisements out there, promising one easy payment and an improved credit score, it can be difficult to figure out what service it is that a debt management plan actually provides.
Can the plan help you get out of debt? Read on to understand what to expect from a debt management service and you’ll be able to easily decide whether you should consider debt management plans or not.
What is a Debt Management Program?
This is a service offered by debt management services to pay off debts. If you take part in a debt management plan the provider will negotiate repayment plans with your creditors and, if they agree, they may lower interest rates or waive certain fees and charges.
You are then required to deposit money with a credit counseling agency and the company uses the deposit to pay your creditors, on your behalf. They pay credit card bills, medical bills, or other unsecured debts according to a payment schedule they’ve worked out with you and your creditors.
Once you are signed up with a debt management plan you are not allowed to open any new credit accounts. You might not be able to prepay your bills. Check with your credit counselor before you sign to make sure you understand what is happening with your money and when the program ends.
How a Debt Management Plan Works
As a start, the debt management firm contacts your creditors with offers stating how much you will pay each month and for how long you will pay. If all of your creditors agree, you simply send your check to the company once each month.
Some of your creditors may refuse to work with the debt relief company, and may need you to pay them separately. Your credit counselor can help you deal with this company. They perhaps send them a better offer or need you to make a certain amount of on-time payments to this creditor so that they will agree to go on the program.
If you find it difficult to pay off your outstanding debts on time a debt management program makes certain all of your creditors are paid on time. You send them one check each month, and they send out checks to each of your creditors in the agreed amount. To make sure everything is going well, however, don’t forget to occasionally check your credit report.
Should You Consider a Debt Management Plan?
A debt management plan is best suited for you if you are simply finding paying the bills too stressful and you don’t have too many options to get out of debt.
Do you owe about $10000 of debt from several creditors? As you have a bad credit rating you might find it difficult to get a low rate debt consolidation loan. Fortunately, even though you need to extend time or reduce the monthly payment you can still afford to pay off the debts with your current income.
If you are in such a financial situation consider getting help from a credit counselor, or having a debt management company deal with your creditors. But before you enroll in a debt management program make sure that you work with a reputable debt management or credit counseling agency that puts your best interest at heart.