Debt Management Plan: Is It For You?

By: Michael Millington

One method of debt relief revolves around enrolling in a debt management plan. At times, a debt management plan will be suggested through credit counseling should you choose to start this method of debt relief. Having a debt management plan for your unsecured debt might be a perfect solution to help you achieve debt elimination. Knowing what to expect with a debt management plan can be crucial to attaining success with you finances.

 

What is a Debt Management Plan?

 

Simply put, a debt management plan is a plan to help you pay off your debt with the support of a credit counselor and your creditor. Offered through a credit counselor, enrolling in a debt management plan is not unlike other forms of debt relief. Once in a debt management plan, all other lines of credit through credit cards must be closed. During a debt management plan, no new lines of credit can be opened. If you attempt to open a new line of credit, you might lose the benefits that accompany a debt management plan.

A debt management plan is an agreement between a creditor and a debtor with a credit counselor as an intermediary. The counselor can act as a liaison between debtor and creditor. This can take the stress out of speaking with creditors. If you need to interact with your creditor for any reason, you can do so through your credit counselor. If you have a credit counselor that doesn’t charge you (many don’t charge for credit counseling services) then they can provide education for free.

While a part of the debt management plan, a debtor has the ability to receive concessions from the creditor. Creditors can take away certain extra fees and payments from your overall principal amount while a part of the debt management plan. This serves as an incentive for debtors to keep up with their payments as it lessens the amount they have to pay. Failure to keep payments (or trying to apply for credit) can result in creditors reinstating fees they’ve taken off.

 

Debt Management Plan Versus

 

As stated earlier, being a part of a debt management plan is not unlike other debt relief initiatives. The main goal of a debt management plan is to help you achieve debt freedom. However, the manner of which this form of debt relief employs may not suit everyone who is looking to rid themselves of debt. There are many aspects of a debt management plan that mimic other forms of debt relief. However, this does not mean they are all the best aspects that have been taken.

Debt management takes some queues from bankruptcy filings as it forces you to relinquish your credit cards. Unlike bankruptcy, a debt management plan will not negatively affect your credit score or record. While it does show up on your credit report, it will not have the vastly detrimental effect that a bankruptcy filing would have. Avoiding the crippling effect of a bankruptcy filing can help your credit in the long run, but remember that you would still be paying your debt in a debt management plan. Bankruptcy, while bad for your credit, can possibly discharge your debts, leaving you free from repayment.

Other forms of debt relief may also yield more favorable results than a debt management plan. Debt settlement can reduce the principle amount of money owed as well as remove some fees. Debt consolidation uses one major loan to pay off multiple debts. This doesn’t force you to close out other lines of credit and actually diversifies your credit lines on your report, making a positive impact for your credit in the long run.

 

When Should You Consider a Debt Management Plan?

 

A debt management plan does not rely on your credit to get started. This gives this form of debt relief an instant boost over debt consolidation. While paying off all of your debts with one loan might seem ideal, you would have to have ideal credit to get the type of loan you need. If you lack a good FICO score, you might run the risk of getting a consolidation loan with a higher interest rate. To avoid this, a debt management plan might be ideal.

You might consider a debt management plan if you simply cannot adhere to other types of debt relief. In many ways, debt relief can help to rid you of your debt with only a small price to pay.  However, many people who need debt relief cannot pay for it (bankruptcy), qualify for it (debt consolidation), or handle the consequence of having it (which may lead to negatively impacting your ability to achieve debt freedom). A debt management plan might help where other forms of debt relief cannot.

A debt management plan might help you get out of debt when you need to, but it might also cause more problems than it solves. Being a part of a debt management plan requires you to follow strict rules in order to maintain your plan. If you happen to break your plan arrangement (by not making payments on time or applying for new credit) there’s a chance that you will lose any benefit from a debt management plan.

 

A debt management plan is a viable way to eliminate your debt. As with many other forms of debt relief, a debt management program is not without its detriments. If you are unsure of whether a debt management plan is right for you, don’t hesitate to contact the experts at Guardian Debt Relief. Our certified specialists can help to direct you towards debt freedom. Give us a call today and take advantage of our free, no obligation consultation. You owe it to yourself to find out how you can rid yourself of debt as quickly as possible. Take the first step and contact Guardian Debt Relief today.