Pros and cons of debt management plans

0
91

[ad_1]

If you are mired in debt, you are not alone. The average American has over $ 90,000 in debt, including credit cards, student loans, and personal loans. If you’re struggling to pay off your balance, one option is to work with a non-profit credit advisory agency and sign up for a debt management plan. With this approach, you can pay off your debts in five years or less and get other help in managing your money. Debt management plans are not for everyone, however, and there are some drawbacks to consider. Here’s what you need to know.

Key findings

  • Debt management plans allow you to pay off debt in five years or less.
  • To start developing a debt management plan, you need to partner with a non-profit credit advisory agency.
  • Registration and maintenance fees may apply to participate in a debt management plan.
  • Debt management plans are only for unsecured forms of debt such as most credit cards.

What is a Debt Management Plan?

When you sign up for a debt management plan, you will be working with a non-profit organization. credit counseling agency. Your advisor will contact your lenders to get them involved and may be able to convince them to lower your interest rates, lower your monthly payments, or waive late fees. A consultant can also help you budget, cut costs, and better manage your money.

Under a debt management plan, you will only make one monthly payment to the credit counseling agency and not pay directly to your creditors. The consulting agency will pay the money to your creditors on your behalf according to the payment schedule they agree on together.

Debt management plans require consistent monthly payments. They usually take three to five years to complete, and you must agree not to use or take out any additional loans during this time. At the end of your debt management plan, your bills will be fully paid off and you will be out of debt.

Pros and cons of debt management plans

pros

  • Free yourself from debt within five years: Under a debt management plan, you usually pay all of your existing bills within five years.
  • Simplify your payments: Instead of memorizing multiple payments and due dates, you only make one payment to the credit counseling agency. Having just one payment can make managing your money easier.
  • Improve your credit rating: As you start making payments in accordance with your debt management plan, you can gradually improve your credit rating.

Minuses

  • Lose access to credit cards: To make sure you don’t run into additional debt, credit counseling agencies will require you to stop using or even close your existing credit cards. Going forward, you will rely solely on cash and debit cards until your debt is repaid.
  • Unable to open new lines of credit: While you are in a debt management plan, you cannot open new lines of credit, so you cannot use a car loan to buy a car or a personal loan to renovate your home.
  • Lenders cannot participate: Not all lenders will agree to participate in a debt management plan. If lenders refuse to be included, the plan will be less effective.

3 credit advisory agencies to consider

There are many credit advisory agencies operating. While there are usually registration and service fees, some agencies waive these fees under certain circumstances.

Below are three nonprofit credit advisory agencies that offer debt management plans in all 50 states:

Be aware that scammers sometimes impersonate legitimate credit counselors. When evaluating potential agencies, make sure they are non-profit organizations. It’s also a good idea to check each one you are considering with your state attorney general and / or your local consumer protection agency… IN U.S. Guardianship Program there is also a list of agencies that may suit you.

Alternatives to debt management plans

While debt management plans can be effective tools for paying off debt, they are not always the best strategy. For example, secured debts and student loans are not suitable for debt management plans, and credit counseling agencies may limit the amount of debt you can have to participate in one of the plans.

If a debt management plan isn’t right for you, consider the following alternative strategies:

  1. Debt Consolidation: In debt consolidation, you take out a personal loan and use it to pay off your existing bills. With a lower interest rate and fixed monthly payments debt consolidation loan can help you save money and speed up your repayment.
  2. Amortization: Amortization is a risky strategy in which you stop making payments in the hope that your creditors will agree to a lower amount.
  3. Bankruptcy: If your debt is more than you can reasonably pay off, then filing bankruptcy can remove your obligation to pay all of this. However, bankruptcy information will remain on your credit reports for seven or 10 years, depending on the type of bankruptcy, and will make it difficult for you to obtain loans in the future.

If you are unsure which approach is best for your situation, contact a nonprofit credit counseling agency and talk to a consultant about your options.

[ad_2]

Source link