Debt Management Plans: Not Paying as Agreed but Still Paying

Debt management plans are one possible solution to paying your debts instead of getting them reduced through bankruptcy. If anything it is a way for person who wants to do the right thing to recover from any debt crisis they are having due to a job loss, prolonged illness, or other setback. A debt management plan allows payment to your creditors—not as agreed but it is still a way to pay them. Keep that fact in mind as it relates to other facets in a debt management program like the following:

Many debt management plans are possible because the credit counseling agency works in close coordination with the credit card companies. The payment amount negotiated may be less than the monthly minimum required by the credit card company and so it will get reported as late paying on your credit report. You may let this scare you away from a debt management plan but keep in mind that you are still paying your creditors—just not the way you initially agreed to. But of course your situation changed in ways you had not planned for either.

Do not get debt management plans mixed up with debt settlement plans. With a reputable debt management plan, you are still making payments to the credit card companies. True, the payments are probably at terms that result in payback much lower than the credit card company would like but cash is flowing from you to them nonetheless. With a debt settlement company, the payments you make are probably getting held in escrow and stored in hopes that a negotiated settlement amount can be agreed upon with your creditors. The problem is that that enrollment into a debt settlement plan can trigger the credit card companies to take action on you in the form of a lawsuit because they may not be getting any payment at all while the money is getting held in escrow.

The fact that you are paying looks better should a creditor sue you. It happens. The only thing that can protect you from lawsuits is bankruptcy and debt management is not that. One of your creditors might reject a payment proposal contained in the debt management plan and pursue other options to recover its debt. Oftentimes this comes in the form of a lawsuit. There are no guarantees that participation in a debt management program will sway the judge but it can’t hurt to show that you are trying to pay people you owe. A lawsuit should be taken seriously but the only response to a lawsuit is to do everything you can to get the debt paid off which is what you are doing through a debt management program. Credit card companies and other unsecured creditors are interested in getting their money.

My participation in a debt management program has reflected negatively on my credit report. And any credit counseling agency that tells you it will not should be avoided. More than likely, your credit report will reflect that you are in a debt management program and of course this will affect your ability to get any new credit. Plus, any open credit card accounts you have will probably close on you. But this is not the time you need to be buying a house or a new car. Plus your credit report had negative information in the form of high balances and multiple credit card accounts anyways. It is far better to show that you took action to get your debts paid.