Debt management programs, also called as debt management plans, are one
of many available debt relief options for you, where you deposit money
with a credit counseling agency and they use the deposit to pay off your
creditors, on your behalf.
In the hand of reputable debt management company the program can work to
your benefit in a variety of ways. However, debt management plans are
not the best solution for all debt problems. Before you use a debt
management plan for debt relief consider learning the following risks
and benefits first.
Advantages of a Debt Management Program
During the debt management plan your credit counselor helps you in dealing with
your creditors to reduce monthly payments. Using their expertise and experience
they can arrange affordable repayment plans to reduce and eventually eliminate
your debt.
Once they receive your monthly deposit they will then pay your credit card bills
and other unsecured debts according to payment schedules they've worked out with
you and your creditors. You will receive a month report about how much and when
your creditors are being paid.
If you're repaying your debts through a debt management plan there is a chance
that your creditors may agree to freeze or lower interest charges and waive
certain fees on your accounts. You will also be helped to regularly review your
circumstances and modify the plan to quicken your debt repayment progress.
Disadvantages of a Debt Management Plan
A debt management company will often charge up-front fees as a "set up" charge
and is paid a kickback or "fair share" as a percentage of the surplus that is
paid to your creditor. There is also a monthly administrative fee or "voluntary
contribution" for handling the monthly payments to your creditors and any follow
up that is required during the DMP.
In a debt management plan you generally have to repay all of your debts. There
is no guarantee that the negotiation will be successful. In many cases some of
your creditors may agree to reduce or eliminate the interest charges but some
others might not accept your payment offer. Be aware that the agreement by your
creditors is voluntary and it is not legally binding.
If you are late with a payment, miss a payment or are not able to make your
contribution after you have enrolled in the DMP your creditors may no longer
want to lower interest rates and waive late charges. As a consequence your debt
will increase and you have "late" marks on your credit report. And a similar
devastating consequence will likely to occur if the company falls behind on
their payments to your creditors.
So, before you enroll in a debt management program find out exactly how the
program works, how much it costs you and what happen if you cannot pay on time.
Also, consider hiring an accredited, non-profit agency that is licensed in your
state. Make sure you get all verbal promises in writing and only pay them once
they send you the contract.
