The Truth About Debt Management Plans: Everything You Need to Know to Dig Out of Debt

Are you trying to find a way out of crippling debt? Credit counseling is an excellent way to cope with multiple loans. The right debt counseling company can help you forge a new way out of the debt zone. Debt management is not just for business debt. There are millions of people in the USA who are currently trying to overcome personal debt. Debt has become an epidemic due to the credit card trends among today’s adults and youth. People often find themselves under thousands of dollars of debt with no easy way out.

Debt management is a thriving industry that promises lucrative debt relief plans. If you are driving on the interstate, you will come across hundreds of billboards screaming about debt relief and debt management. While these programs claim to be helpful, are they really for everyone? Are they legal? Can debt management plans (DMPs) help you cope with surmounting debts and intimidating creditors? There is a lot you need to know before you can sign yourself up for one of these programs.

The real deal – advantages of a DMP

Yes, they can help lower your interest rates

Debt management companies can talk to your creditors. It includes banks, credit unions, and individual creditors who have lent funds to your business. More often than not, the direct negotiation process involving a creditor and an experienced debt counselor helps to bring down the interest rates. You can expect an interest rate of 12% to 16%, especially if you are paying an APR of 20% or more. This small reduction in interest rates can save you and your business thousands of dollars each year.

Expect just one monthly payment

It has to be the most significant advantage of any debt management plan. Debt management is the first step towards debt consolidation. It brings the bliss of a single monthly payment to the lives of all debtors who have availed any form of debt management. A good debt management company often helps their clients to collate their debts and reduce the number of monthly payments to just one. The single monthly payment comes with a flat interest rate and an extended credit period.

Giving your business another chance

No one wants to declare bankruptcy. Besides, bankruptcy is hardly a way to get out of paying your creditors anymore. The new Bankruptcy Abuse and Prevention and Consumer Protection Act of 2005 makes sure that no business owner gets away scot-free without paying their debts. The new act has brought a means test that determines whether the individual can file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, thus determining the future of their finances. Debt management is a much better alternative to legally standing on the breadline. Debt management will put your finances in order, help you prioritize your payments and negotiate better interest rates. If you are still unable to pay off your creditors, then you can consider filing for bankruptcy.

Turning on the payment autopilot

When you are opting for a debt management plan, get ready to automate your payments completely. It is a huge benefit of working with professional debt management companies. You can opt for a debt management plan that pays all your creditors each month directly from a designated account. You will never have to worry about missing another payment ever again! It can also save you a significant amount when it comes to penalties that arise from missed payments.

Is a debt management plan right for you?

Debt management plans can sound like a dream come true if you are struggling with multiple debts, high-interest rates, and very high APRs. However, a DMP cannot become your savior just because you are succumbing to debt. A debt management plan can be a smart option if:

  • You will be able to afford the minimum monthly payment on all your priority debts, your living costs and credit card bills.
  • Your creditors are hounding you, and you would like some legal and expert help to deal with them appropriately.
  • Your budget can get back on track if you switch to a lower interest rate and single monthly payment.

Debt management plans work with a few drawbacks

So, now that you understand how a debt management plan can help you, you need to realize that DMPs come with their own set of disadvantages. These do not necessarily vary from company to company. These are basic principles of business loan management, and they are part-and-parcel of almost all DMPs you will find.

  • It will take you longer to pay your debt because you will be opting for lower payments each month.
  • Debt management companies can be non-profit, but they are not free. You will have to pay a fee for the counseling and management.
  • There is always a slim chance of your creditor turning hostile post-negotiation and refuse to cooperate.
  • The debt management plan can reflect on your credit record.

If you are ready to brace these odds and fight your way back to financial freedom, then debt management is undoubtedly the option for you. Just follow these steps, and you will be able to set a DMP up for yourself with ease:

  • What are your priority debts? Make a list of them and discuss payment options with your debt manager.
  • Do you have a set budget? You can be a business owner or a homeowner, and having a budget will help you make sense of your financial situation while paying off your creditors one by one.
  • Opt for an experienced and reliable provider. Costly may not always mean good, but free is not always better. Research their history and background thoroughly before you sign the agreement.
  • Check the agreement for convoluted clauses or hidden fees.

Paying off your debts should be your ultimate goal. Opt for a DMP that helps you pay your creditors, even if it prolongs your repayment period. Always remember, you should be able to support your livelihood while paying off your debts. Do not discount the cost of regular lifestyle expenses while sketching your new DMP.

Author: Robin Gupta