Are There Disadvantages of Debt Management Companies?

Debt management programs may be a solution for those who have problems paying off their credit card balances. While they can help customers, debt management programs often come with their own set of problems. In some cases, these issues make it difficult or impossible to use debt management programs.

Debt Management Basics

You may have seen debt management programs advertised on television. These programs aim to help you pay off your debts by lowering your interest rates and providing you with a payment schedule that maximizes your contributions. Most debt management programs are set up so you can get out of debt within five years, provided you stick to the plan.

High Dropout Rate

Sticking to a debt management plan might not seem difficult, but the numbers show that it's far from a given. The debt settlement group DebtShield states that three out of four people on debt management programs drop out before their plans are completed. Though debt management programs strive to work with your budget and give you an affordable monthly payment, many people find they are unable to meet the financial obligations of the program.

Inability to Use Credit

One of the reasons so many people drop out of debt management programs is that you typically cannot use your credit cards or apply for new credit while on the program. Living without credit can be difficult. For example, if your car experiences mechanical problems and you can't use your credit card to pay for repairs, you could be in a difficult situation because of your debt management program's restrictions.

Lengthy Term

Although debt management programs try to get customers out of debt as quickly as possible, the process usually takes years. Even if your term is four years, it's easy to lose patience over that period, especially if your balances are high. It may seem you're not getting anywhere and you may give up on the program. You may opt for a quicker alternative, such as debt settlement, which has a different set of consequences. Seeing the program through to its conclusion requires a commitment, which might not be possible for everybody. This is especially true if you undergo life changes, such as getting divorced or having a child, while on the program.