Debt management programs, also called as debt management plans (DMPs), are one of many available debt relief options for you. The program requires you to 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 many 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 pros and cons first.
Debt Management Programs Pros
During the debt management plan your credit counselor helps you in dealing with your creditors to reduce monthly payments. Using their ability 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 check your circumstances and change the plan to quicken your debt repayment progress.
Debt Management Programs Cons
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 result your debt will increase and you have “late” marks on your credit report. And a similar devastating result 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.