Is a Debt Management Program the Answer for You?
Debt management program is a legal agreement between a lender and a borrower which deal with the structured terms of a pending debt. This commonly refers to an individual finance program of individuals addressing large consumer debt issues. Under this type of program both the lender and the debtor to enter into a financial contract in order to set up future payments. There are many reasons why a debtor would enter into this type of agreement.
First, creditors will often accept less payment than they may otherwise receive if you were declared bankrupt. Second, there may be certain circumstances where in a bankruptcy proceeding creditors refuse to accept any settlement offer from a debtor. Finally, if you have filed bankruptcy previously and have not settled your debts with creditors, then you may want to enter into a debt management program. The reason for this is that some creditors are not willing to deal with debtors who file bankruptcy. A bankruptcy will make it difficult for you to obtain credit, which is often needed to continue to build your credit history.
If you have entered into a debt management program and you have made all of your monthly payments on time, then this will help to raise your credit score. This is because the debt management company is reporting to the credit reporting bureaus that you have been paying all of your bills on time. If you have not made payments on time then your debt to income ratio will show as “zero percent credit score.” This can take several months to years to repair, depending on how many late payments you have made.
There are several different types of debt management companies, such as credit counseling agencies, non-profit organizations, for-profit companies, and private creditors. It is important to research all available debt management companies to ensure that you get the best one. Some of the major considerations for choosing a debt management company include: reputation, payment options, fees, services offered, rates, and flexibility. You should also take a close look at the contract terms. You may find that there are hidden costs or excessive fees that you were not aware of before entering into the agreement.
Another consideration is to check with your creditors to see if they can waive or eliminate some of the late fees on your credit reports. If your creditors request that you stop making payments on the account, you should consider reporting them to the debt management program. Your creditors will likely be willing to negotiate with you because you will be paying less money per month. This is better than having no payment at all.
With a successful debt management program, your credit report may show a paid balance of all accounts except one. Your creditor will instruct the debt management program to report this account as “paid as agreed” which makes it appear as though you made one monthly payment. This could save you a lot of time and embarrassment if creditors begin calling you about payments missed. By taking the initiative to get this account settled, you can avoid being called by creditors and you can get back on track financially in a timely fashion.