Debt management plans are one of the mostly widely used forms of debt management, but this doesn’t mean they are right for you. You will find these services with a consumer credit counseling services but beware not all are focused on the quality of their work. If a credit agency isn’t customer focused it is not them that will suffer but you, as they are dealing with your creditors, your debts and your credit rating.
When you first contact a credit counseling agency they should asses your needs and if they think you will benefit from a debt management plan then they will set it up, if you agree to their terms and conditions. They will contact your creditors and rearrange your terms and try to halt any interest and even reduce the balance, then each month you pay a set amount to the company and they distribute your money to the appropriate creditors and take their fee too.
But there are things that you need to consider, as with any option there are always negative and positive advantages in taking out a debt management plan.
Debt Management Plans Pros
- Payments will stay the same every month; this will give you the chance to set out a budget and learn to manage your finances.
- You are not allowed to have any credit card accounts open, thus helping you to stop increasing the debt that you owe.
- Sometimes late fees are waivered and interest rates can be reduced, thus helping the total amount of money that you owe.
- You will only have one monthly payment to make each month.
Debt Management Plans Cons
- Debt management plans are not suitable for all credit card debts, these plans are more suitable to those that can afford to pay the monthly repayments and not need other forms of credit, like a credit card.
- The repayment plans can be very restrictive and do not allow for missed payments or financial crisis. I
- It can have a negative effect on your credit report because your creditors will normally inform the credit reference companies that you are paying through a management plan.
- It is restrictive as to what debts that you can combine things like mortgage and car loans are not acceptable, it is more for the unsecured personal loans.
- There have been incidents with fraud; people that are in financial trouble seem to attract fraudsters willing to harm them more.
- The management companies sometimes themselves make late payments and this causes more problems for the customer as they then suffer with late payment fees and charges.
- You will need to look for reputable companies if a Debt management plan is right for you.
There are some plans that might suit your needs but you will be paying for these services, you might be able to sort all this out on your own saving you the extra fees you would have been paying and maybe pay off your debts earlier.