Debt management is one of the programs that can be associated with debt consolidation. The whole process involves the restructuring of the consumer’s debt payment plan so that it becomes easier to follow. Sometimes, people just need to reorganize their payments so they can pay off their debt more efficiently.
Although debt consolidation loan is another way of consolidating debt, most financial experts will suggest debt management. Although both are effective, debt management offers a more concrete debt solution compared to debt consolidation loan.
5 Benefits of using a credit counselor in debt relief
One of the strongest points of debt management is the fact that you have a credit counselor helping with your debt. In fact, this program begins with credit counseling. In most cases, you will go through the process of counseling before you can really decide if you will allow the counselor to manage your debts for you.
If you do decide to use debt management, you need to pay a service fee of no more than $50 a month. The credit counseling part is usually free but the debt management is not. You need to be careful about the credit counseling agency/debt management company that you will hire to help you out. There are various scammers who can trick you out of your money so be cautious of your selection. It helps to begin your search by looking at the members or reputable organizations like the National Foundation for Credit Counseling or the NFCC. You should also look at the Better Business Bureau or BBB website to find out if the company you are interested in has received any complaints from their past clients.
When you have found the right company, here are the benefits that you will get should you choose to use this debt relief option.
Debt relief expertise and negotiation skills
The whole lynchpin of debt management is call the DMP. Short for debt management plan, this is what you will use to restructure your debt payments. The credit counselor will use their expertise to help you create this plan. Not only that, they will take charge of sending this to your creditors and negotiate so that they will permit you to follow this plan. It usually contains a lower monthly contributions and your creditors will have to agree with it so you will not suffer any penalties. In some cases, the credit counselor will also negotiate for a lower interest rate.
Working relationship with creditors
All the negotiations will be tricky but credit counselors usually have a standing working relationship with your creditors already. That will make it easier for you to get the approval for the DMP that you both created. Not only that, the counselor will know how to construct it in such a way that the creditors can accept it without any of the payments breaking your budget.
Does not ruin credit score
Since there is no debt reduction in this program, you don’t have to worry about your debt solution damaging your credit score. As long as you stick to the plan, you will not only keep your score, you can steadily improve it as well.
Freezes credit account to keep from incurring debt
When you enroll your credit card debt in a debt management program, the creditor will freeze that account so that you will not add any more debt under that account. This can keep you from incurring more debt and it will only last until you have completed the debt management plan.
Expert advice about personal finance
Probably the best advantage of using debt management as your debt solution is the fact that the credit counselor can teach you the basic personal finance skills that will keep you from debt. These include budgeting, saving, smart spending and the other habits needed for you to live within your means.
5 reasons why debt management is not the right debt solution
While a debt management plan can help with your credit problems, the fact remains that it is not always for everybody. You need to possess the right qualifications and sometimes, the right temperament for it. Here are 5 reasons why this debt solution may not be the best option for you.
You have the wrong debt type.
Debt management can only work on unsecured loans, credit card debt, medical bills and other personal loans. It cannot help with secured loans or student loans. If you do not have the right debt type, you will not be accepted into the program.
You need debt reduction.
Even if you have the right debts, if you know that you need a debt reduction, you may be unable to afford debt management. This program can lower your monthly payment because your current balance is stretched over a longer payment period. But you will still end up paying for everything.
You do not have a stable income to support your payments.
Since there is no debt reduction, this program naturally requires you to have a steady and stable income. Otherwise, you will be unable to support the monthly contributions. And since this is over a longer period, the stability of your payments must be ensured.
The lower interest rate is not guaranteed.
While the lower monthly contribution is guaranteed, the lower interest is not. You have to keep this in mind so that you are not disappointed in case the creditor will not agree to lower it despite the efforts of your counselor.
You want a quick way to get out of debt.
This debt relief program takes around 5 years to complete. Since you are making small payments, you should expect that the progress will be quite slow. If you want a faster way to get out of debt, you need to make bigger monthly contributions or you may have to select another debt relief program.
If you want to learn more about how debt management can help you, watch this video about how you can use debt consolidation.