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.

Article Source: http://EzineArticles.com/2905187

Will a Debt Management Plan Affect My Credit Score As Much As Bankruptcy?

No, because with a Debt Management Plan you're showing a good faith effort to repay the debt through voluntarily seeking credit counseling and setting up a budget for repayment of the entire balance due.

Under bankruptcy you are either wiping out the debt entirely or setting up a payment plan to pay less than the balance owed. Your credit report may contain a notation that a certain account is under such a plan, but if you come to an agreement with a creditor and then hold up your end of the bargain, your credit scores may not suffer.

How much a Debt Management plan affects your credit score will depend upon whether your lender marks your account as late. In some cases that will not be because the lender is unwilling to work with you, but because he is unable to alter the way his billing and reporting system is set up.

For instance, your lender may agree to a reduced interest rate or reduced payment amount, but if the software he uses won't allow the change, it might automatically report your payments as insufficient.

Another occurrence that could hurt your credit scores is getting involved with the wrong credit counseling agency. While you make payments to the agency to disperse, not all agencies send out payments on time. Every late payment will appear on your credit report and will lower your scores.

Be aware that the best, most reputable credit counseling agencies are free. They will help you explore your options and decide if a Debt Management Plan is right for you, or if bankruptcy is the only answer. If you do choose bankruptcy, then you'll also need a qualified bankruptcy attorney.

Bankruptcy will remain on your credit report for 7 to 10 years, depending upon which type of filing you qualify for. By contrast, a Debt Management Plan will be erased from your credit report as soon as you have things under control and exit the plan. Even if you've posted some late payments as a result of the bookkeeping glitches we mentioned, those fade over time and lose significance when followed by on-time payments.

This alone could be a deciding factor if you plan to buy a home any time within the next 7 years. Having the bankruptcy on your report will keep your scores low and could cause you to pay as much as a couple percentage points more in interest, if you can even get a loan.

In today's tight mortgage market, only those with the best scores are qualifying, so it is in your best interests to make decisions now that will affect your credit report and credit scores most favorably over time.

Debt Management Plan - Get Freedom From Bills

Being stuck with debt that makes you feel like you imprisoned because of credit card debt is never easy.

Tossing and turning at night. Praying the collectors don't call when your family is around. And deciding whether you are going to pay next months light bill on time or just pay one of those nagging credit cards before it becomes delinquent again can really become a nightmare.

At one point you might have tried contacting the creditors yourself to try and work out some sort of deal or debt management plan with them. And the truth of the matter is that credits could really care less whether or not you are struggling with your bills. They stand to make more money the deeper you are in debt.

You might have also noticed your interest rates rising high as your debt slowly piled up as well. And the rising interest rates and debt works to the creditors advantage when it comes time for you to pay up.

This is exactly why talking to creditors to work out some sort of debt management plan never works...unless you have some sort of professional experience.

And getting the right debt management plan is the difference between sharing your hard earned paychecks with creditors and you being able to breathe a sigh of relief after you have gotten rid of your debt.

Knowing that your debts are taken care of, creditors have stopped calling and you can finally shop wherever you want without having to worry about your card declined is now possible when you reach out for the professional help that is available to you.

And in the past you had no choice but to pony up the full amount or risk being taken to court for avoiding your payments. Fortunately now by choosing the right professional help you can actually now pay less than what you owe. This means that you can pay off your debts much faster and also put more money in the bank for emergencies or even to spoil yourself a little bit.

At this point it is up to you to either continue to let your life spiral out of control because of debt, or you can make use of what is available to you so that you can finally breathe and enjoy life like you used to.