Debt Management Pros and Cons - DMP Benefits

According to InChargeFoundation.org, an educational and counseling service website on credit card debt management, the average amount of debt carried by those seeking debt management services is $5,000 to $9,999.  For those with significant debt, especially if it's growing, a debt management plan may be the best solution to a stubborn problem. Before settling on a plan though, consider the positive benefits, and make sure your provider can deliver them to you.

Debt Management's Impact on Credit Score

Whether participation in a debt management program (DMP) positively impacts your credit score depends on two things – your diligence in sticking to the plan, and how your creditors report your actions. If your plan includes a negotiated payment of a reduced amount, a creditor may report you as making only partial payments. However, CreditCards.com reports that in many cases (and with the help of a good debt management counselor) most creditors will be willing to report payments as "paid as agreed" and on a timely basis, and some will even re-age the account to give you a fresh start.

Debt Management Plan Provides an All-Inclusive Strategy

It is possible to negotiate debts and make settlement arrangements without the help of a debt management company, and many consumers do so successfully. However, if you have multiple debts it can take time, and your efforts may be met with mixed results. Furthermore, while some creditors are more amenable to the idea of negotiating with consumers directly, others need to be convinced by a professional debt manager before they will agree to your requests. Typically, this makes negotiating your debts on a one-off, ad hoc basis less optimal than implementing a comprehensive strategy with the assistance of a debt management professional.

Lower Interest Rates and Payments

According to the Federal Reserve, the average interest rate for a credit card with a balance is 13.67%, and CNNMoney reports rates as high as 59.9% APR with some subprime accounts. In addition, the Credit CARD Act of 2009, designed to regulate the credit card industry and provide consumer protection, may unintentionally influence interest rates. The CARD Act limits upfront fees credit companies can charge, but does not cap interest rates. As a result, some subprime card providers have already started to raise interest rates for their most credit-impaired customers, pushing them into a debt spiral.

With the help of a debt management counselor, you can reduce interest on your debts, decrease your minimum monthly payment, and even re-age your accounts to make delinquent accounts current, saving hundreds of dollars in late fees. Reducing the amount you need to pay over the long term is the cornerstone of a debt management plan. The Motley Fool notes that credit card companies are surprisingly willing to give such concessions if you simply ask them.

Continuing Support of a Long-Term Debt Management Solution

Perhaps the greatest benefit of debt management is the continued assistance provided. Reputable debt management companies often stay in contact with you after the initial debt consolidation is finished. Having someone to call who can knowledgably answer questions not only solves your immediate problem, but also helps prevent problems from occurring in the future. Ultimately, debt management isn't a magic bullet that is applied once to solve all your problems; it is a program that teaches new habits you should apply throughout your life. Continued support helps keep you on track in the long run.

Flexible Debt Management

According to a 2008 study, the average monthly income of those who seek credit card debt management services is between $1,000 and $1,999. With a limited income, making the most of each payment is crucial to paying down debt in a timely fashion. A good debt management plan should be flexible, allowing you to pay more of the principal if you are able or re-negotiate for lower payments if you suffer a layoff or decrease in income. This flexibility in a debt management plan is especially beneficial to those whose income fluctuates, like construction workers, seasonal workers, or waiters and waitresses.

Smart, Secured Debt Management

Working with a debt management company can prevent bankruptcy and other legal actions against you while minimizing damage to your credit score. In addition, many debt management companies can keep secure debts, such as your mortgage, from being frozen, and protect you against foreclosure or eviction. These are huge advantages to keep a bad problem from getting worse.

Debt Management Brings Peace of Mind

Consider the stress of credit card debt management. Putting all the problems and headaches of a debt management plan into the capable hands of a knowledgeable professional brings peace of mind. It’s not enough that someone is actively working on your debt problems; it’s important that the person is a professional. The knowledge that a professional and capable debt management company is handling your debt matters will enable you to sleep better at night.