An intentional agreement between the creditor and debtor to settle the unpaid amount is a Debt Management Plan. According to the plan, the debtor agrees to repay a lesser amount every month. Along with being helpful, these plans are harmful too.
Pros
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It’s very likely that creditor will harass the debtor after agreeing on a Debt Management Plan. |
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Creditor usually agrees quickly for a settlement because they known it’s better to get something rather then nothing. |
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A Debt Management Plan is a better option than filing for bankruptcy. |
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With the helps of these plans, a debtor can try to reduce all his debts including credit card debts and unsecured debts. |
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A debt management plan is very flexible as it isn’t an obligatory agreement between both the parties. Debtor can anytime switch to alternate options. |
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A debt management plan is very flexible as it isn’t an obligatory agreement between both the parties. Debtor can anytime switch to alternate options. |
Cons
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Although most of creditors will usually agree to a settlement plan, there isn’t any guarantee. It depends on the will of the creditor. |
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Opting for a debt management plan definitely marks a negative impact on your credit rating, which means it becomes extremely difficult for debtor to seek unsecured loans further. |
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Even if the debtor gets a loan, the APR will be considerably high. However, if the debtor already has a bad credit, it won’t affect much. |
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Debt management plans helps to reduce the repayment amount because the interest and other charges are written off. However, there is no reduction in the principal amount. Whereas, other alternatives helps to reduce up to 75% of the actual loan amount. |
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Though many charges are written off when a debtor opts for a Debt Management Plan, the Debt Management Company levies 15% fees, which is a further load for debtors. |
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These plans only cover unsecured loans and credit card debt and not secured loans and mortgages.
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So, it can be said that debt management plans are quite helpful when the repayment amount is low. However, when the debt is huge, it’s wise to opt for some options. |
