How Debt Management Works Debt Reduction Service

How Debt Management Works

Written on February 11, 2011 – 11:50 am | by Antony Clark

An overview of the Debt Management process, so that you will be informed about how this particular debt relief program works before you join a program.

Debt Management agencies (credit counseling agencies) offer services that can help you take charge of your financial situation. If you are facing a financial hardship, and you want resolve your issues with the help of your creditors, debt management may be the ticket for you.

Debt Management Basics

With debt management, a credit-counseling agency will first perform a financial assessment to help you identify the root source of your financial difficulties. Afterwards, a certified counselor will work with you to create a plan to put you back on track. In some circumstances, a debt repayment plan or debt management plan (DMP) is entered into.

Debt settlement plans work hand in hand with your creditors, so that they are fully aware of your situation, and they know that you are not ignoring the debt owed. The credit card counselor will contact your creditors to try to make your monthly obligations manageable for you in your current financial situation. In return, you have to agree to close your account with the creditor, and keep up with your monthly payments.

Benefits of Debt Management

In debt management programs, an enrolled creditor may agree to reduce your interest rate. Some creditors offer a lowered interest rate for all consumers enrolled in debt management plans. Other creditors offer debt relief of options on a case by case basis, taking into consideration individual financial hardships (ex: if your financial hardship is greater than others, your interest rate will be lower than others).

In addition, if you were delinquent on your account prior to enrolling in a debt management program, some creditors are willing to bring your account current, even if you do not pay the full balance owed (re-age your account). Your credit report will show a “current” status, and any past due amounts will be dropped from your statements. Finally, some creditors may remove late and over-limit fees.

Drawbacks of Debt Management

If you decide to enroll into a debt management plan, there is no guarantee that your creditors will agree to participate. In addition, your creditors retain the right to litigation if they are not paid the full balance owed when they demand. Many debt management programs will examine your income to determine if you “qualify” for their program, and finally, the program is usually slower than other debt relief options, like debt settlement.

When is Debt Management a Good Idea?

If you are a consumer who has a lot of unsecured debt (credit card debt, personal loans, retail store card debt, etc.), you do not mind waiting a long period of time to fully repair your credit (5 years or so), and you cannot bear annoying collection calls, a debt management plan may be for you.

Many debt management programs are free to low cost, and if you are income eligible for their program, it is a no-brainer that you join. If you are interested in debt management as an option for debt relief, make sure that you contact a reputable credit-counseling agency from the Department of Justice U.S. Trustee list which can be found below. Good Luck.

- Sources -

Federal Trade Commission (FTC) Debt Management “Must Do” List

Uniform Debt Management Services Act

U.S. Trustee Debt Management Plan (DMP) Program List

Debt Reduction Service