Debt management is a form of debt of relief that involves a meticulously built plan or program for repaying debt. This type of debt relief aims to reduce unsecured debts (such as student loans, medical bills, or credit card debt) by following a well-planned budget to pay back all creditors simultaneously.
How do Debt Management Plans Work?
A debt management program typically affords a period of 3-5 years for repayment with reduced interest rates (between 8-12%) and a lower, overall monthly payment.
If you use a credit counseling agency to help with your debt management plan, they negotiate lower payments & interest rates on your behalf. Rather than tracking down & having to pay a separate bill for each debt, enrolling in a debt management plan with an agency allows you to consolidate these bills into a single monthly payment. You pay a single sum every month to your credit counselor who then disburses the funds to your creditors in accordance with the terms of the repayment plan.
Debt Management Program Pros
Debt Management is a unique form of debt relief with advantages that include:
- The ability to consolidate all debts into a single bill without the need for a loan.
- Lowering interest rates and total debt has to be repaid.
- Establishment of reasonable monthly payments that can help a borrower gain complete freedom from their debt in under 5 years.
- Ending the harassment from collection agencies and creditors as they start seeing payments come in.
- Helping debtors stay organized and on top of repaying their debt.
- Unlike many other forms of debt relief, debt management can actually improve credit score if all payments are being made on time.
Debt Management Program Cons
While a debt management plan can be incredibly useful for reducing debt, there are a few things to be aware of before deciding on which option is best for your financial situation. Some of the disadvantages that can come with this form of debt relief include:
- Not every debt management plan is free. Many credit counseling agencies are nonprofit and may offer financial advice for free while many others charge a premium for this service.
- The entire process of becoming debt free through a debt management program usually takes a minimum of 3 years to complete.
- Lower Credit Score. In some cases, creditors are still expecting payments during the initial setup of a debt management plan even though a debtor is enrolled in a repayment plan. Sometimes, this can result in a late payment mark on your credit report which can hurt your credit score. This happens seldomly as most creditors will stop pursuing payment upon being made aware that a debtor is enrolled in a debt management program.
- Late payments can destroy progress. Any late payments made to a creditor or credit counseling agency while enrolled in a debt management plan can cause serious harm to progress towards being debt free. Creditors may revert interest rates & monthly payments to their previous levels
- It can be difficult to apply for new credit while enrolled in debt management. In most cases, an enrollee’s ability to borrow new credit while still making payments on a debt management plan are disabled.
Enrolling in a Debt Management Plan
If a debt management plan is the right option for your needs, a meeting with a financial advisor can be a great first step. Once the inflows and outflows of your financed have been mapped out, an experienced credit counselor can help you figure out exactly how much should be paid monthly towards a debt management plan. From there, the process is often quite simple: make on-time payments to the debt management company & gain freedom from debt in 36-60 months.
Finding the Right Debt Management Company
With many forms of debt on the rise in the United States, the debt management industry is booming. There are many options to choose from when it comes to picking a credit counseling agency to handle your debt management program, but knowing what to look for can help narrow that search significantly. A financial firm of quality will keep you in the loop about every step of the process, keep a constant dialogue with your creditors, and ensure that all payments are distributed on time.
When searching for a debt management company, it can help to:
- Read their reviews. See what past clients have said about their financial services. Check to see if others are mentioning hidden fees or any other issues they encountered when using this company.
- Only go with companies staffed with certified professionals. There are a surprisingly large number of fraudulent credit counseling agencies out there taking advantage of unsuspecting debtors. So, make sure to check into the certifications of anyone who calls themselves a financial professional before moving forward with any company.
- Avoid upfront fees. Beware of debt management companies that are charging upfront fees as this is out of the ordinary & can be a warning sign of something bad. Most debt management plans include a small monthly fee (usually below $50) that covers the cost of services rendered by the credit counselor and will not ask for an upfront payment.
For more information on companies that provide debt relief services, check out our company reviews to see what some of the best agencies in the industry have to offer.Get Help Now