How Debt Management Plans Can Help You

If you're struggling with unmanageable levels of personal debt and have exhausted all other avenues, a debt management plan might be the option for you if you're eager to avoid bankruptcy. Although a debt management plan should not be entered in to lightly--accepting one can seriously damage your credit score--it may give you the breathing space you need to get your financial affairs in order. You should only enter into a debt management plan with an accredited or certified credit counselor and make sure that you have everything in writing, particularity a breakdown of their charges and terms, before proceeding.

Negotiate With Creditors

The credit counseling company that administers your debt management plan will negotiate with your creditors on your behalf. They will seek to set up a payment plan that satisfies both parties and stop your creditors from bombarding you with phone calls and letters about your back charges. Once you've entered into a debt management program, you're unlikely to hear from your creditors unless you start to miss payments or pay late.

Lower Monthly Payments

As part of your debt management plan, your credit counselor may be able to lower or eliminate the amount of interest being charged on your debt. They may also be able to reduce your monthly payments to a more manageable level. In most cases, it will be in the interests of your creditors to establish a payment structure you can afford. The lenders you owe money to know they are more likely to recoup their money from you through a debt management plan than they would if they pushed to make you bankrupt.

Debt Counseling

Good nonprofit credit counselors should provide you with a comprehensive review of your financial position before entering in to a debt management plan. A reputable counselor will not recommend that you enter a debt management program if it's not the right thing for you. If you do go ahead, your counselor should be able to offer you ongoing advice about money management and how to avoid future problems with debt.

Retain Assets

If your counselor is able to negotiate a debt management plan with your creditors, you will be able to retain assets like your house or other high-value items that you could face losing if you were declared bankrupt. As long as you maintain your payments in a timely fashion and avoid taking on further debt, your assets will be safe.