Debt Management Plans
When a consumer reaches out to a credit-counseling agency for debt relief help, they help the debtor by creating a debt management plan that will enable them to pay off their debts faster. This is a huge help to the consumer, because the credit counseling agency manages to give them reduced payment amounts and lower interest rates. In addition, consumers are typically not penalized for late payments through debt management plans.
Debt Management Plans and Types of Debt
Secured debts, including mortgages and car loans, cannot be included in debt management plans. However, unsecured debts like personal loans, credit cards, department store cards, medical bills, and utility bills can most definitely be included in debt management plans.
A debt management plan is not a loan; therefore, there are no credit checks.
Length of Time Debt Management Plans Last
Every situation is different; therefore there is no exact timeline for everyone. Debt management plans typically last for three to four years, but your credit counselor will let you know your estimated payoff time.
In order for you to know for sure that your creditor did indeed receive your payments, they will send you a monthly statement indicating how much has been paid and your current balance.
Debt Management Plans and Legal Action
Debt management plans cannot prevent creditors from taking you to court over your debt. However, if you have your debt management plan payment history, it will prove that you have indeed been paying off your debt.
Debt Management Plans and Your Credit Score
Your credit score will not be affected in the slightest if you decide to use a debt management plan. There may however be a statement on your credit report that indicates your use of debt management to pay your bills. This statement will remain on your report until the debt has been completely paid off.
Debt Management Plan Payments
Depending on the consistency of your unique financial situation, the agreed upon payment amount for your plan may or may not change. If your finances improve while you are on the plan, you may have to make higher payments, thus enabling you to pay off your debt faster.
Credit Card Use
While you are on a debt management plan, the use of credit cards must end. The last thing you want is to accumulate more debt while you’re on a repayment plan for the debt you already have. Therefore, credit counseling agencies usually request for you to sign an agreement stating that you will not use credit cards during the debt management plan process. There is also the possibility of the agency suspending or even closing your lines of credit until your debt is paid in full. Still, there is an emergency card that is always allowed.
Home and Car Purchases
Different lenders have different rules when it comes to buying a home or car while on a debt management plan. Usually, you have to have made on-time debt management plan payments every month for at least one year before you can qualify for a secured mortgage or car loan.