Debt Management Plan Pros and Cons List
Debt management becomes imperative when you have impending debts that you cannot repay. A single debt or loan can be settled or the repayment terms can be reworked. When you have multiple loans or debts and in all likelihood from different lenders, the standard approach to settlement or renegotiating the repayment terms will not work. The only viable solution is debt management. A debt consolidation company will work out a debt management plan. The company will effectively consolidate all your loans into one, repay all the lenders or get into some kind of repayment agreement amongst them whereas you get to repay one consolidated loan according to a fresh set of terms. As with any financial product or service, there are some debt management plan pros and cons.
List of Pros of Debt Management Plan
1. Debt Relief
The first or principal advantage is also the ultimate objective of debt management. You would manage to pay your debts and be completely relieved of impending financial liabilities. Living with debt is not only detrimental to your financial health and credit history but it has a myriad of adverse effects on your personal life. Seeking debt relief is a natural pursuit and debt management plan is a practical way to achieve that. There is no better way to be done with the debts unless one has a windfall gain in some way, perhaps inheritance or the lotto.
2. Pay Less
The most crucial advantage of a debt management plan is the revised rate of interest. When you have multiple debts, it is obvious you would have multiple rates of interest. Some may be quite reasonable and some may be quite high. You may not want to do anything with the lower rates of interest but the steeper ones need to be revised. That is exactly what happens with a debt management plan. It is possible that the least rate of interest you pay right now would be lower than the rate of interest levied on the consolidated debt but you can do the math to see the savings. On an aggregate or average, you will pay a lower rate of interest with a debt management plan.
3. Easier Repayment
You would have only one rate of interest and one loan or consolidated debt, which truly simplifies the whole repayment plan. You don’t need to deal with multiple lenders and collection agents. You would not be compelled to deal with invasive phone calls. You need not worry about a multitude of diverse terms, different late payments and repayment schedules. One loan, one interest and one repayment plan, it cannot get any simpler than this.
4. Improved Credit Score
One of the positive impacts of a debt management plan is on your credit score. Should you have settled one loan or two, it would have had an adverse impact on your credit history. If you had been unable to pay all your debts, then your credit score would have crashed substantially. Debt management plan prevents any such fallout. Your credit score may have already dipped if you have defaulted on a few repayments. Signing up for debt management or consolidation will first stem that crash. As you initiate debt management and go through with the plan, your credit score will gradually improve. It is possible that your credit score will be marginally improved than what it was when you had signed up for the loans, albeit having it unaffected or restored is good enough.
List of Cons of Debt Management Plan
1. Possible Fallouts
Debt management plan is the ultimate recourse. There is nothing beyond that you can do. Should you fail to honor the terms of a debt management plan, you will possibly be charged with heavy penalties. Your credit score may crash immediately. You may not qualify for any loan thereafter. The terms may get reviewed and this time you would not be able to extract any consideration or an iota of generosity from the debt management or consolidation company. When you struggle to repay multiple loans and manage to repay off a few, you will be stuck with some and be done with some. With a debt management plan, you would be stuck with the entire loan if you are unable to repay it completely.
2. Unsuitable for Some Borrowers
Debt management is demanding for everyone. When someone has failed to manage and repay their loans, the situation is already daunting. Debt management is easy and simple but the scenarios an individual has to deal with will determine how convenient the whole process turns out to be. Salaried professionals, self employed or business owners who have a stable income may do well with a debt management plan. Anyone who has a fluctuating income, financial instability or a degree of uncertainty may not do well with a debt management plan.
3. Bad Deal
It is not uncommon for defaulters or borrowers to be given a bad deal. There are some debt consolidation companies that operate with serious hidden clauses or confusing terms. Stay away from such companies and only deal with the most trusted debt consolidation firms.