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What is a Debt Management Program and What Can it Do for You?

When debts get out of hand and you need a solution, a debt management program may be just what is needed. Debt management programs are usually offered by credit counseling agencies. It is basically a program that coordinates with your creditor’s new payoff terms for your debt. Debt management programs deal with unsecured credit card debt only. As a concession for the prospect of recovering a good portion if not all of your debt, they may forgive late fees and lower interest rates. The goal of the debt management program is to pay your creditors so that the debt is satisfied. It is not like bankruptcy where only a portion of the debt if any is paid. Here are some more aspects and benefits of a debt management program that should be of interest to you:

The debt management program acts as a clearinghouse for payments from you to your creditors. It acts as a central point to make one payment and then that money is divided up based upon payment amounts agreed upon with your creditors. This is a very attractive feature of debt management programs because oftentimes the debtor will have several accounts open and due and be having trouble managing them.

The debt management program you choose should offer free education. And there should be plenty of it. Once you get over this nightmare, you don’t want to return and you need the education to teach you new ways to handle and budget money. The credit counseling agency you use should provide a lot of free information. The credit counselor you deal with in your debt management plan should also be personable and helpful in your new attitude towards money.

Regardless of the effect it has on your credit, a debt management program can provide a positive result. Arguments against debt management program say that enrollment in it will reflect negatively on your credit record. However, you do not need any new credit at this time. New unsecured credit will only keep you in debt which is not the way you want to go. Use common sense and think about what enrolling in a debt management program really reflects. It really reflects that you want to pay back what you owe whereas bankruptcy makes a statement that you would like to not pay back everything if possible.

A debt management program allows you to be an active participant in paying off your debt. It gives you a sense of ownership in your customized debt payoff plan. You have to make the payments and you have to track where the money goes. It is unlike bankruptcy in that you still have a lot of input and control in the entire process. With bankruptcy, you are at the mercy of the trustee, court, and creditors who want to get as much as they possibly can. Bankruptcy is also more adversarial in nature.

You get the benefit of the credit counseling agency’s network with your creditors. You can try to negotiate lower interest rates, forgiveness of late fees and overlimit fees, and new payment schedules with your creditors yourself. However, you may not be as successful as when you use a credit counseling agency that already has an established network relationship with most if not all of your creditors.

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