If you find yourself drowning in debt and finding it hard to pay your bills every month, a debt management plan could help you get back on track. A debt management plan allows you to consolidate your unsecured debt so that you only have one monthly payment. You, your creditors and a credit counseling service agree to this arrangement. You agree to send a payment to the credit counseling company each month, and the service makes payments to your creditors according to a payment schedule that you and your creditors have agreed to.
Debt management plans have several advantages. For one thing you can eliminate the stress of having to juggle multiple debts and monthly payments and consolidate them into one debt management plan and monthly payment. To eliminate your debt you just focus on making the one payment each month until your debt is paid off.
Another advantage to a debt management plan is that you work with your existing creditors rather than taking out a new loan. This means you don’t have to take on more debt or a new creditor.
There are disadvantages to debt management plans as well. A debt management plan does not eliminate your debt it just consolidates it into one place. It can help make your monthly payments more affordable, but if you extend your times or pay less on your balances then you will end up paying extra interest and it will take you longer to get out of debt. Another drawback is if you default on your debt management plan the credit counseling service can report this to the credit reporting bureaus. This can have a negative effect on your credit rating.
Another disadvantage to a debt management plan is that they only cover unsecured debts like credit card debt and not secured debts like car payments or mortgages. Therefore a debt management plan will not help people who are struggling with some of their larger monthly bills like house and car payments.
You may be able to accomplish what a debt management plan does on your own. You can try to negotiate with each of your creditors. If you have just a few debts that might be something you can do. However, if you have several unsecured loans and credit card balances it may be more manageable for you to work with a credit counseling service and enter into a formal agreement under a debt management plan. These services have the experience and connections with creditors and can help you draft a debt management plan that works for you.