Well, The Debt- Management Plan Isn T A Free Lunch

Category: Finance, Credit.

For about 25 percent of those who turn to credit counselors, more than advice is prescribed. A debt- management plan( sometimes called a debt- repayment plan) involves the agency as an intermediary( for a small monthly fee it handles both communications and payments on your behalf) and it includes revised payments that: A) Are acceptable to all your creditors.

In these cases, in addition to an action plan, a debt- management plan is recommended. B) Leave you enough money to handle your living expenses. Such plans include: an alternative to bankruptcy, or an interest, debt consolidation- rate- reduction plan. C) Generally get you out of debt in two to five years. All these descriptions have been attributed to debt- management plans. Here s how: When creditors realize that you can t meet the original terms of your credit cards or other loan agreements, they also realize that they re better off working with you through your credit counselor. In fact, debt management plans offer all these benefits- and perhaps a lot more.

Under a debt- management plan, your creditors are likely to be open to a number of solutions that will be to your advantage. B) Changing your monthly payments to an amount you can afford to pay. These include: A) Stretching out your payments so that the combination of principal( the amount you originally borrowed) and interest will pay off your balance in 60 months or less. C) Reducing your interest rate and/ or any fees associated with your loan. Why would creditors be willing to do all these things for you? D) Stopping creditors from hounding you day and night. Because if they don t do some or all of them, and if you really can t make the payments, you ll file bankruptcy- and your creditors will never get their money.

But how does the creditor believe that without staking out your house or apartment to verify that you aren t drinking Champagne and driving a new Corvette? The critical point here is that the creditor has to believe that you can t make the payments as agreed. The creditor generally takes the word of the non- profit credit- counseling agency you ve gone to for help. Well, the debt- management plan isn t a free lunch. Sounds like a good deal: lower interest rates, and all, smaller payments. The minuses may include the following: A) A possible negative impact on your credit report( although just being in a debt- management plan does not affect your FICO score) B) An increase in interest rates( unless you pay in full and through the credit- counseling agency you originally signed up with) C) Restricted access to credit during the term of the plan.

The bottom line is this: If you re in debt crisis or you re concerned you may be getting close to it, a debt- management plan from a good credit- counseling agency may be just the solution. D) Difficulty in changing credit- counseling agencies after you begin a debt- management plan. If you re just shopping for an interest- rate reduction or a consolidation- loan alternative, a debt management plan may not be in your best interest.

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