Is Debt Management Plan Right for You?

Like other debt-relief methods, a debt management plan may work for some people. It might not be the best solution for some people. Therefore, it is imperative to understand it so that you can decide on the right solution. In today’s article, we will tell whether or not a debt management plan is a right option for you. Read on!

What is a debt management plan?

A debt management plan is a comprehensive strategy, which allows people to pay off their debts at affordable rates. The provider will work with you for affordable payment and negotiate on your behalf with the creditors. You will make one monthly payment to the debt management provider who will then pay the creditors.

Is debt management a good option?

Usually, it is a good option for those who are overwhelmed by debt, such as credit cards and medical bills. It is also beneficial for people with unsecured debt, which don’t involve collateral.

Let us give you an example. If you can’t pay your car or mortgage loan, then a debt management plan is not a suitable option for you. Similarly, student loan debt is not eligible for these plans except in some rare cases.

However, if you have a few credit cards and you have to pay off debt on each of them, then a debt management plan can simplify things for you. It is because you have to make only one payment each month and the provider will handle the rest for you.

The best use of the debt management plan

It is essential to discuss your financial situation with a credit counselor in detail. He or she will negotiate lower interest rates with the creditors as well as waive payment fees. All of this will help you lower your monthly payments.

When you have a lower interest rate, the provider or the creditor will apply most of your monthly payments to the outstanding balance. Thus, this helps speed up the repayment process.

Does it affect your credit?

Paying off your debt requires you to be responsible and carry out the task promptly. When you make payments on time, then the debt management plan will positively affect your credit.

On the other hand, some people participating in such plans may hurt their credit. The impact occurs during the course of the debt management program because the company can break its promise of lower interest rates.

The adverse effect is due closing of your accounts while you use the plan, which will significantly impact your debt-usage ratio. It is an essential factor, which accounts for 15% of the credit score.

In contrast, when you pay down your debts, it will improve the status of your overall debt levels. Many people have seen improvements in their credit scores after using such programs.

Remember, creditors are not obliged to acknowledge and accept the debt solution from your debt management provider. However, if the terms are right for both the parties, then they will negotiate to come up with a reasonable solution and allow the debt management plan.

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Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry for many years holding numerous licenses in multiple states. He currently helps operate cashkingco.com and is our resident expert on all things finance and a great writer. Thomas is also an avid outdoor enthusiast that loves fly fishing streams in the Western United States. LinkedIn Profile