Debt Management Plan Pros and Cons - Get All the Facts

Debt management plans (DMP) are one of the most popular debt elimination options, but that does not necessarily mean they are the best option for your particular situation.  The agencies that offer these plans are consumer credit counseling services (CCCS) and they range widely in quality.  This article will disscus the debt management plan pros and cons.

When you contact a credit counseling agency, they should initially provide you with a counseling meeting to analyze your financial situation and, if appropriate, suggest a DMP.  If you agree to sign up, they will try to stop late fees and negotiate lower interest rates with your creditors.  You will send them a monthly payment and they will divide that payment among your creditors and make all your monthly payments for you.  However, as with any debt reduction program, these plans have their own pros and cons.

Debt Management Plans Pros

• Monthly Payments Do Not Increase--Unless you or the counseling company skip or send late payments, you don't have to worry about payment increases.
• You Are Required To Close Your Credit Card Accounts--It is required that you refrain from using any credit cards.  You might not see this as a benefit, but it is a benefit and it does make sense.
• Some of the creditors may be able to stop late fees and lower interest rates.
• You don't have the inconvenience of paying multiple bills every month, although is highly critical that you review your balances in your statements every month.

Debt Management Plans Cons

• DMPs Are Not For Everyone--These plans are primarily for the consumer who has just enough steady monthly income to pay the debt management plan and pay for monthly expenses without the need to use credit cards.  You should have a savings account for emergencies (see item below).
• Very Rigid Payment Plans--You are not allowed to skip a monthly payment or pay less than what was originally agreed, even if you have a financial emergency.  As a result this programs have a high drop out rates.
• Your Credit May Be Negatively Affected--While the CCCS does not report you to the credit bureaus, there is no way to stop creditors to note on your consumer credit report that you are making payments through a DMP.
• Only Unsecured Debts Are Allowed:  If you have tax, alimony, child support, car, mortgage  and other secured debts these plans cannot help you.
• Widespread Fraud:  Although there are some companies that are honest and care about the consumer, there are many that are deceptive and fraudulent.
• Some companies do not make the payments on time, as a consequence your account may get hit with late fees and higher interest rates.  This is a common complaint among consumers.
• You have to do a lot of research and ask a lot of questions in order to find a good CCCS, but all that work might be worth it if you think a debt management plan is for you.

So there you have the debt management plans pros and cons.  By now I am sure you agree that it is crucial that you do your own research and ask a lot of questions before signing up for a DMP.  However, you can surely do your own debt management program.  All you need is a system, some discipline and determination, and for a tiny fraction of what you would pay a counseling agency you can purchase a do it yourself debt reduction system or you can do a search for a free system.

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