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Debt management plans pay debt and restore credit
By plrprousers | March 23, 2010
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. Many avoid doing so, however, because of misconceptions about how debt management plans work. Some people have even been misled by debt counselors to believe myths about debt consolidation. Others can be insecure about being unable to pay obligations have convinced them 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. In order to do so, a consumer agrees to regularly deposit money into an account and allow the counselor to pay debt that it owed from that money. 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. When a counselor is allowed to pay debt on behalf of the consumer, most creditors realize the opportunity to collect what is owed to them and are willing to cooperate in making it affordable to do so.
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 clearly understood that the creditor is under no obligation or expectation of reducing amounts owed, but such is done as a courtesy at the creditor’s 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. This is mostly 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. Also, creating a debt management plan does not adversely affect one’s FICO score at all and, in fact, the Fair Isaac Company does not give reference to debt counseling on one’s credit 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. Unfortunately, charlatans exist in every industry and financial planning is not exempt. In some cases, people have been told that the best way to repair their credit is to pay an exorbitant fee to a counselor, while 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. Often, perks such as lower fees on existing debt and new credit is extended, though 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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