Consumers who are turning to debt management plans as a way of erasing personal debts have found that there are benefits through these repayment programs that have allowed them to avoid further financial distress or damage to their credit score, when these plans are properly implemented. However, many consumers who use a debt management plan may be uncertain of how they differ from other assistance programs, like credit counseling or debt settlement, and advisers caution consumers to explore these opportunities that may help their personal debt situation before turning to a particular plan or organization.
Debt management is essentially an agreement worked out between a borrower and a consumer, typically through a counseling organization, that allows certain debts to be settled through either smaller payments, forgiveness of certain charges or fees, and after this has been completed, these organizations can help consumers put themselves in a better financial position so that they can avoid further strains in their finances down the road.
Many consumers are often counseled to seek a debt management plan if they speak with an adviser and it is apparent that with their current income they are unable to meet all of their minimal debt obligations. Understandably, some people have fallen into this position as a result of unemployment or other financial struggles, and in many cases simple credit counseling does not help them through budget suggestions or savings plans. However, consumers who are in position to make repayments on their debt can benefit from a debt management plan because, again, it will lower the amount of money that a consumer must pay to various creditors without having to seek out forgiveness of these debts.
Typically, a consumer will make payments to a credit counseling organization or a debt management company, who will then pay creditors a percentage of this payment and, over time, this can help to erase debts that were previously unaffordable. While debt management services do usually charge a fee, reputable organizations will be very upfront about their pricing and offer reports as to how a consumer’s money is being paid out. Also, debt management, while not an optimal choice, is a better opportunity for consumers than, for instance, a debt settlement program. Debt settlement can be detrimental to one’s credit score as a consumer will be paying less money than was originally owed on debts as a smaller amount is negotiated on a particular debt, which the consumer will then pay.
Yet, for consumers who simply need more affordability on their monthly payments related to various debts, if credit counseling or simple budgeting practices are unhelpful, these debt management plans may be the best option that a consumer has to avoid doing a substantial amount of damage to their credit score, and even if there are issues related to a consumer’s credit after completing one of these plans, many organizations can, again, help the consumer get themselves back into a better financial position and more positive credit standing.