Are you looking for ways to cope with debt? Counseling agencies can provide you with some relief through their plans. If you choose the right organization, it can help you get back on track.
There are many debt management providers today, and this is because many consumers find themselves drowning in their financial burdens. These providers promise relief from your obligations, which is why they attract people struggling with finances.
What is a Debt Management Plan?
It is an informal agreement between you and financial institutions to pay off your obligations such as credit cards. It is a third-party payment process by which you make a single payment to the provider, and then that person distributes the money among your creditors until you have paid off all of them.
The agencies don’t provide financial solutions or settle them for you. Instead, they provide you with arrangements with various institutions. Your payments go toward reducing the total balance instead toward finance charges.
On the other hand, though, you might have creditors that don’t offer concessions. If that is the case, then the benefits of the plan are reduced. However, you can choose to cancel the plan at any time.
Before you sign up for one, the following represent some of the things you need to know about the plan:
Management Plan or a Settlement
One thing to keep in mind is that the plan is not a settlement. The purpose of a Management Plan is to assist individuals in paying down their financial burdens. On the other hand, a Settlement is an agreement that allows you to pay less than what you owe to your creditors.
Some lenders will waive or reduce finance fees as part of a Management Plan. That allows repaying your obligations faster. Through the plan, you can pay off your burdens between three and five years.
Debt Management is Not Another Debt
You are not required to take out another debt when you become part of the programs. It is not like a consolidation where you get another instant approval loan and merge all your debts into one. The plan is a long-term strategy to repay your existing burdens.
Before you consider consolidation, you should go through counseling first. That way, you can find the best solution for your finances. If you have money left after removing all your expenses from your monthly income, the counselor can present you with various options, including consolidation.
A considerate and knowledgeable counselor can motivate and enlighten you when you need it most. A good one will study your finances and provide you with the best solution for your problem.
Wide Range of Agencies
When you search for debt management providers, you will find many organizations offering the same services. Experts suggest choosing nonprofit organizations that have certified and experienced counselors.
Make sure that the company you choose to send your statements and payments will do so in a timely fashion, is well-organized, and provides good support and information. If it fails in even a single category, go look for another one. You should be at ease with your counselor.
Plan Have a Negative Impact
You should know that the plan might have a negative impact on your credit rating. Your report will show that you are participating in the program. Some potential property owners and lenders might be hesitant to consider you for an apartment, a mortgage, or let you borrow money because being part of a Management Plan shows you are struggling with your finances.
Creditors also report to bureaus that you are part of a plan and not paying the obligation as stated in the contract. That’s why you should participate in a plan only if you are really having a hard time repaying your obligations.
Takes Five Years or More
You need to work with a counselor to come up with a repayment plan. You need to have patience and time to go through with the plan. A typical plan takes around two to five years, but some cases require more time to complete.
If you borrowed a lot of money in the past, though, you should expect the repayment period to be longer than five years. It might seem like a long time, but the ultimate goal of the plan is to get rid all your burdens. Once you complete it, you no longer owe any money, however.
Most Plans Are the Same
Another thing to consider is that the structures of the plans are similar. A counselor computes how much you will need to repay all your debts within two to five years. The amount is around 2.5 percent of your total obligations. Some institutions provide some wiggle room, depending on the current state of your finances.
You can cancel the plan at any time. You can also prepay some money if you get additional funds in the future. That way, you get rid of your burdens faster.
When you are part of the program, you are making a single payment every month, which is less than the total payments you are currently making. This is possible because it is the result of the waived fees and lowered interest rates. With the plan, you have extra funds that you can put into your savings.
Cons of Such Plans
There is the situation when these plans might not work or can go out of the hands. A consumer has more than dollar seventy-five hundreds of debts should go for a debt settlement. However, paying the debt largely depends on other factors too like income, expenses and other individual’s circumstances.
Bankruptcy can be another choice for people those find themselves unable to repay their debts. So, this is a significant downside of these debt management plans which we have to consider it as well.
When Not to Participate
Some instances are not ideal for a plan. You need to consider the type of obligations you have. Child support, tax bills, and student loans are ineligible for debt management. When you find it difficult to pay your college debt on time, it is best to contact your provider and get some tips from existing colleges as well. Ask them for other payment options; one type is income-based repayment. For your tax bills, ask the IRS if you are qualified for a payment plan.
When you are considering getting a Debt Management Plan, make sure to take the time to choose the right agency. If you have any reservations about the counselor, ask for another one. It is important that you have a good working relationship with your counselor because they must work with you to achieve your financial goals.