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.
- 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
- 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.
- 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: