Debt consolidation can be made into one monthly payment via a debt management plan – making it easier for a person to pay their debts off more easily by changing the payment plan they have. There is also the option of a debt consolidation loan – financial experts tend to recommend debt management – but both are good but debt management provides a better solution to your debt than a loan does.
5 good reasons to use a credit counselor
One of the best pros of using a debt management plan is that you will have the help of a credit counselor. The debt management plan actually starts with credit counselling and before you decide if the counselor is going to manage your debts you will go through the counseling process beforehand to make a decision on whether it is the route you wan
Up to a $50 service fee
When you use a debt management plan you should be charged a service fee up to $50 per month. You don’t usually get charged for the counseling as it is generally free, however debt management isn’t. You must ensure you are careful when you choose a debt management company or a credit counseling agency. There are a lot of companies out there that try to scam and trick you out of your money – so ensure you are careful when you make your choice. Start by looking at the NFCC (National Foundation for Credit Counseling) and the Better Business Bureau (BBB) – both are reliable organizations – and find out if a company you want to use has had any complaint from previous clients. When you choose a company that’s right for you, here are some benefits that you will receive.
- Expertise in negotiation and debt relief – you will use a DMP to reorganize the payments of your debt. Credit counselors will aide you to plan this. They will also send the payment plan to you creditors and ask them to allow you to do it. In other words they will negotiate your offer with the creditor. Generally it involves a smaller payment each month and you will not gain any penalties. They may also discuss a lower rate of interest with your creditors.
- Counselors have a good relationship with creditors – a credit counselor tends to have a good relationship with creditors, making it simpler for you to get agreement on your debt management plan that you and your counselor have come up with. They will also ensure that your plan does not exceed what you can afford.
- It won’t ruin your credit score – as you are not asking for a debt reduction if you stick to your plan your score will not worsen – in fact it will slowly improve.
- Credit cards will be frozen – if you have a credit card in your DMP the creditor will freeze it so that you cannot add any further debt to it. This will stop you from getting into more debt and will end when you finish the DMP.
- Simple personal finance skills – the best pro of debt management is that you will receive simple skills in personal finance to stop you getting into debt. Such as, saving, smart pending, budgeting and other things.
Five cons of debt management plans
A DMP can assist in your credit problems but it is not always suitable for everyone. In order to use a debt management plan you need to have the correct temperament and qualifications. Below are five reasons as to why a DMP might not be the right solution for you.
- Not available for all types of debt – DMP’s are only available if you have credit card debt, unsecured loans, other personal loans and medical bills. A debt management plan cannot be used on student loans or secured loans. You won’t be accepted onto a DMP if you don’t have the right kind of debt.
- You still pay for everything – if you are in need of a debt reduction it may not be for you. Although you will be paying a lower amount the balance you have is drawn out over a longer period of time, so you still have to pay it all back.
- You need a stable income – A DMP entails you to have a stable and steady income or you will not be able to support the payments.
- Lower interest is not definite – although you will be getting a lower monthly payment, you may not get a lower interest. Bear this in mind so that you are not let down if the creditor does not agree to lessen the interest rates.
- You won’t be out of debt quickly – A DMP takes roughly five years as you are making smaller payments so advancement will be slower. In order to have a quicker way out of debt you must make your monthly payments larger or simply choose a different debt management program.