Everyday there are ads on the radio and television telling people that they can avoid filing bankruptcy and ruining their credit by joining a debt management plan. Although there are some legit credit counseling companies out there that may be able to help, more often than not these companies are fraudulent and do not offer a real solution to your debt situation. Below is a brief synopsis of the pros and cons that a debt management plan offers.
Management Plans (DMP):
do Debt Management Plans work?
A Debt Management Company (DMC) will contact your creditors to inform them
of your circumstances and stress the advantages to them of accepting your fixed
payment plan offer. They will request that all interest and charges be stopped
and that no legal action be taken against you. Typically, this allows
you to consolidate all unsecured debts into a single, more affordable
monthly repayment. This is then paid to your creditors at a fixed rate over a
specified period of time.
What are the advantages of Debt
Decreased Anxiety and Stress: Taking
part in a DMP is a demonstration to creditors that you are serious about paying
your debt; therefore, it is unlikely that your creditors will take legal
action against you as long as you maintain your payments.
Lower Monthly Payments: Monthly
payments are easier to follow since you are making only one lower payment for
all of your unsecured debts. If your monthly payment is more than the interest
and charges you are incurring, then your DMP will show you just how long it will
take for your debt to be paid in full.
What are the disadvantages of Debt
Continued Charges: While most DMPs request that interest
be frozen and monthly charges cease immediately, this is often not the case
and will depend on the level of your debt, how long you have had it, and who
your specific creditors are. Over time some creditors may agree to such
conditions after you have maintained your plan; however, nothing is guaranteed.
Continued interest and fees are often the biggest drawback of a DMP. If your
monthly payment amount does not exceed your monthly charges, your debt can actually increase in the short
term. So while you may stop harassing
phone calls and legal attempts to collect on your debt, you can be making your
financial situation worse, and it will in fact take you longer to repay your
debt since you are making smaller payments.
Not Legally Binding: Creditors do not have to accept your
payment plan offer, and it is still possible for creditors to pursue legal
action against you while enrolled in a DMP.
Negative Effects On Credit Score: Creditors will report your
failure to comply with terms and conditions of your original credit agreements which will negatively
affect your credit score.
Management Charges: The best Debt
Management Companies typically charge a 15% administration fee. While this is
generally taken out of your monthly payments, some companies front load these
Ultimately, you are the one who will have to decide whether a Debt Management Plan or Bankruptcy is the right choice for you, but you do not have to make this decision alone. Before deciding which is the best debt relief solution, make sure you research your options and the companies offering the services. Debt Management Plans and Bankruptcy can both be life altering, and you should not take any action until you are positive it is the right one for you. For more information on Debt Management Plans and Bankruptcy visit http://szymoniaklaw.com or consult a qualified bankruptcy attorney.