Pay debt and restore credit with debt management plans

The Truth about Debt Management Plans

Creating a debt management plan helps consumers pay debt, reestablish credit and begin to regain control over their finances. However, many avoid doing so because of misconceptions about the way that debt management plans work. Some people have even been misled by debt counselors to believe myths about debt consolidation. For others, insecurities about being unable to pay debt obligations have convinced them that they are precluded from creating a debt management plan that works.

Debt management plans explained

A debt management plan (DMP) is created with a trained counselor who is willing and able to help consumers pay debt and rebuild credit profiles. To do so, a consumer agrees to regularly deposit money into an account, and allow the counselor to pay debt from those funds. A bonus of a DMP is that debt collectors are inclined to lower or get rid of fees that have accrued due to non-payments. If a counselor is allowed to pay a debt on behalf of a client, creditors often realize the opportunity to get what they are owed and are willing to work it out.

Dispelling myths about debt management plans

While many creditors view a debt management plan positively, it is never guaranteed that they will do so. It should be understood that the creditor isn’t under an obligation to reduce any amounts owed, but it can be done as a courtesy at their discretion. Thus, existing fees should always get factored into budgets and used to pay debt.

People are also sometimes reticent to participate in a DMP because they have heard rumors that doing so will hurt their credit. For the most part, this is false. In fact, more often than not, the opposite is true. Creditors often view DMPs as a person taking a serious approach to take control of finances and repair credit. While it is up to individual creditors as to whether or not they will grant future credit, many are inclined to do so as they see a person taking serious strides to pay debt. Creating a debt management plan doesn’t affect a persons’ FICO score at all, and Fair Isaac doesn’t even reference debt counseling on a report.

A Word to the Wise on Debt Counseling

Many have also been afraid of creating a debt management plan because they have been in contact with unscrupulous debt counselors. Charlatans do exist in all industries, and financial planning isn’t exempt. In some cases, people have been told the best way to repair their credit is paying exorbitant fees to counselors and ignoring past debts. In cases like this, people have trusted other to do the right thing, and instead, their credit gets ruined and their money has been pocketed, and some debt has even gotten worse.

Rebuild credit and a new financial future with a debt management plan

Overall, a debt management plan is a great way to pay debt while reestablishing one’s credit. Perks like lower fees on existing debt and new credit can be extended, but not guaranteed. As people become more aware of their options to pay debt and rebuild credit, a debt management plan becomes reasonable and realistically can give them control over their finances and future.

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