The Negative Impacts of Debt Management Plans – How the Debt Settlement Program Has a Positive Impact on Your Credit Score
Debt management plan is basically an agreement between a lender and a borrower which deal with the repayment of an unpaid debt. This commonly refers to an individual finance procedure of people dealing with high consumer debt in the form of credit card. The main objective is to devise a debt repayment plan, wherein a borrower repays a specific amount of money each month, as agreed upon between the two entities. Such plan ensures that the borrower is able to return the borrowed amount, over a given time period. There are different debt management plans available to suit different people and their needs.
There are mainly two types of debt management: secured and unsecured. A secured one, involves the transfer of a borrower’s property to the lender, in case of non-payment. This is usually done in exchange for the regular repayment of the secured amount. In case of failure to comply with the conditions, the lender can repossess the property and resume the debt management process. However, this process is quite expensive since the amount is kept on a secured loan for a long time period. On the other hand, an unsecured debt management program does not involve any transfer of any property.
For a person who has a large number of unsecured debts to repay, the best option would be to avail of credit counseling services. Credit counselors are experts in financial matters and they know how to negotiate with the credit card companies for the best repayment plan. With the proper use of a credit counselor, the credit card companies will be convinced that it is better to make the payment plan than declaring bankruptcy. It is very common for people with large debts to seek credit counseling services to find ways and means to pay off their debts.
Nonprofit credit counseling services are another option available to help people with debts to manage their finances effectively. Though this particular service does not involve any process of repossession or holding of property, the fees charged by these non-profit agencies are quite high. For this reason, only people who can afford to pay high fees should opt for debt management plans. People with bad credit history and late payments would have to pay higher fees to obtain quality services from non-profit credit counseling agencies.
A debt management company is the best solution if your creditors are difficult to deal with. However, many people fail to acknowledge the fact that dealing with a debt management company can prove to be very frustrating as there are many fraudulent firms that charge exorbitant fees. These firms have neither experience nor any expertise in handling debts. In case the creditors stop making payments, you will be in trouble, as you are responsible for the outstanding bills.
Debt management also involves monthly payments, which can be a great disadvantage for those with a low income. It becomes difficult to keep up with such expenses and if the creditors refuse to negotiate, you may be in trouble. Another problem that debt management companies have is that they take advantage of your lack of knowledge and discipline. If you do not make regular repayments, you are in a position of helplessness, where you cannot seek assistance from anyone.
In such a scenario, the creditors often refuse to negotiate and file lawsuits against the defaulters. As such, it is advisable to hire a debt management company and pay it fees on a monthly basis, so that you can ensure timely repayment of all your liabilities. The charges that these firms charge from clients are quite affordable, as it is far lower than what you would have to pay to the creditors. If you are able to make regular monthly repayments, you will be free from the problems of debts.
Debt management plans offer you the best solution and therefore, debt settlement should be considered as an option only when you are at a risk of going bankrupt. Debt settlement is a legal solution and there is no risk involved. If you are sure of following the right steps, you can easily clear off your debts by using debt management plans without any difficulty. All your lenders will be asking for is the monthly repayment that you can afford and a good plan will work out for you in no time. Hence, there is no reason to be worried about the negative impact of debt management plans on your credit score.