Pros and Cons of Debt Management Plans – Investopedia

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If you are overwhelmed by your debts, you’re not alone. The average American has more than $90,000 in debt, including credit cards, student loans, and personal loans. If you’re struggling to pay off your balances, one option is to work with a nonprofit credit counseling agency and enroll in a debt management plan. With this approach, you can pay off your debts in five years or less and get other help managing your money. However, debt management plans are not for everyone, and there are some downsides to consider. Here’s what you need to know. 
When you enroll in a debt management plan, you’ll work with a nonprofit credit counseling agency. Your counselor will contact your creditors to gain their participation and may be able to get them to reduce your interest rates, lower your monthly payments, or waive their late fees. A counselor can also help you create a budget, reduce your expenses, and better manage your money. 
Under a debt management plan, you’ll make just one monthly payment to the credit counseling agency rather than paying your creditors directly. The counseling agency will disburse the money to your creditors on your behalf, based on a payment schedule they agree on together.
Debt management plans require consistent monthly payments. They usually take three to five years to complete, and you must agree not to use or take on any additional credit during that time. At the end of your debt management plan, your accounts will be completely paid off, and you’ll be debt-free.
There are many credit counseling agencies in operation. While there are typically enrollment and maintenance fees, some agencies will waive those fees in certain circumstances. 
Below are three nonprofit credit counseling agencies that offer debt management plans in all 50 states: 
Bear in mind that scam artists sometimes pose as legitimate credit counselors. When evaluating potential agencies, make sure they are nonprofit organizations. It’s also a good idea to check each one you’re considering with your state attorney general and/or your local consumer protection agency. The United States Trustee Program also has a list of agencies that may be good matches for you. 
While debt management plans can be effective tools for repaying your debt, they’re not always the best strategy. For example, secured debts and student loans aren’t eligible for debt management plans, and credit counseling agencies may cap how much debt you can have to participate in one. 
If a debt management plan isn’t the right fit for you, then consider these alternative strategies: 
If you aren’t sure which approach is best for your situation, contact a nonprofit credit counseling agency and talk with a counselor about your options. 
Experian. "Average U.S. Consumer Debt Reaches New Record in 2020." Accessed Feb. 23, 2021.
Federal Trade Commission. "Coping With Debt." Accessed Feb. 23, 2021.
Consumer Financial Protection Bureau. "How Can I Tell a Credit Repair Scam From a Reputable Credit Counselor?" Accessed Feb. 24, 2021.
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