I Hate Debt Management Plans. Here's Why? | Shamika Saves
I Hate Debt Management Plans. Here's Why? | Shamika Saves
Some types of loans, such as a mortgage, can be a stepping stone toward building wealth and financial health. However, too much debt can leave you juggling bills without a clear path toward financial freedom.
Credit counseling organizations offer debt management plans (DMPs) as a solution for people who are struggling with unsecured loans, such as credit card debt. By getting on a DMP, you may be able to lower your interest rates and monthly payments, allowing you to repay your debts and avoid the negative impact of defaulting or declaring bankruptcy.
Before you initiate a debt management plan, it's important to understand how the process works, as well as the benefits and drawbacks.
What Are the Disadvantages of a Debt Management Plan?
There are also potential drawbacks to getting on a DMP rather than a different type of debt consolidation or repayment program.
𝐈𝐭 𝐰𝐨𝐧'𝐭 𝐢𝐧𝐜𝐥𝐮𝐝𝐞 𝐞𝐯𝐞𝐫𝐲 𝐝𝐞𝐛𝐭.
DMPs generally won't include your secured debts and some types of unsecured loans, such as student loans. Counselors may be able to offer guidance, but you'll generally need to manage those payments on your own.
𝐓𝐡𝐞𝐫𝐞 𝐚𝐫𝐞 𝐟𝐞𝐞𝐬.
You may need to pay an initial setup fee (such as $30 to $50) and a monthly fee (often ranging from $20 to $75) to participate in a DMP. The amounts can vary depending on the counseling agency and state laws, and your financial situation may qualify you for waivers or accommodations.
𝐋𝐞𝐬𝐬 𝐚𝐜𝐜𝐞𝐬𝐬 𝐭𝐨 𝐜𝐫𝐞𝐝𝐢𝐭. You'll have to close any credit cards that you include in the DMP, which will diminish your access to credit throughout the month. Your creditors may also monitor your credit reports and require you to stop using credit cards that aren't part of the DMP while you're participating in the program.
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