Dept management plans?

Has anyone been on a dept management plan ? How do they work ? And how does it affect your credit? thanks

Basically, a debt management company write to all the people you owe money to, and arrange a repayment with them that is lower than what they would normally ask for. They also have the interest frozen on your debts, so they don't get any higher.

Any credit you had is frozen, so if you had a credit card for example, you wouldn't be able to use it again.

The debt management company then handle payments to the people you own money to. You make a single payment to them each month, and they split that and pay each of the people you own.

You have to be careful, as some companies take quite a large amount of your monthly payment for themselves for managing things for you, so it can take a long time to pay off your debts.

In some cases you can actually do the same yourself, ie writing to all your creditors agreeing a monthly payment and freezing interest, and then your debts will get paid off sooner as all the money each month is used to pay off your debts without a management fee taken out. You have to make sure that you pay everyone each month though, and don't miss a single payment, or the deal will probably get cancelled.

A debt management company does make it easier though as they make all the payments, and the creditors may co operate with them more than they would dealing with it yourself. Once you have agreed a monthly amount, you must stick to it, you can't make it smaller easily, so you need to make sure that the amount is one you can afford now and in the future. You also must make the payment to them each month, or it make invalidate your agreement.

Using a debt company can reduce stress that comes with debts, and make sure that everything is dealt with properly.

Before you sign up to any company though, check them out on the internet and read other peoples experiences. Like anything there are good and bad companies out there, and using a bad company can potentially make things worse.

DEBT MANAGEMENT PLANS SUCK!! >:( One of my close friends went through a lot of cr@p with them a few years ago. Here's the lowdown(and the info that the debt management agencies don't want you to know!):

How do they work? Basically a debt management company(DMC) consolidates any payments on credit cards, chargeoffs, collections, etc into one payment. This payment may look small, but that's only because you'll be paying it for several years! They also add in a monthly maintenance fee(this can range anywhere from $10-50, depending on the DMC). They won't be quick to tell you about this maintenance fee, because they're oily!

DMCs also work with your creditors to lower some of your interest rates, esp if your credit card rates were recently raised sky-high due to delinquency/lateness. But don't believe them! Most of the work that DMCs do is ineffective and requires LOTS of following up. Besides, any lowering of interest rates can be easily done by YOURSELF, without needing a DMC. A DMC doesn't do anything more than what you can do yourself, but they charge you fees and cost you lots of aggravation.

Another thing bad about DMCs, is the untimeliness they tend to have. The way a debt management plan works, is you send one single payment each month to the DMC, then the DMC disperses this single payment amongst each of your creditors. Often the DMC will distribute the payment late, which means derogatory late marks being placed by the creditors on your credit reports! And if you dare complain to the DMC about this, they will not accept any blame and instead will blame it on YOU, saying that you need to follow up. Bull$hit! My friend had a horrible experience where, no matter how many times he followed up with the DMC, they would NOT disperse a payment to one of his creditors. It got to the point where this creditor started sending threatening collection notices to him...and the whole reason he got into DMC, was to avoid having this bill be sent to collections!

Did I mention that every time you call to follow up and essentially complete all the "dirty work" for the DMC, the customer service is HORRIBLE? The people are usually cocky, disagreeable, and don't know what they're talking about. They often screw up notes on your account. I've heard someone tell me that even the nonprofit DMCs are bad. Not only would they give bad service, but they would nag and try to hard-sell their customers into giving "donations", since they were nonprofit. If I want to be hustled, I'd rather spend my time at a Jaguar dealership or a strip club...at least at those places, I have prettier things/people to set my eyes on. :)

You might ask yourself, "Why should I be following up so much, and doing all the dirty work, if I'M paying THEM a monthly maintenance fee?" EXACTLY. If they're getting paid, then they should do their job and do it right, agree? THAT'S why DMC is such a rip.

You might realize these hard truths after you've already signed a stupid contract with a DMC. Most DMCs charge you a hefty upfront deposit(my friend was charged a deposit equal to his first payment), and if you drop out of the program early and/or before you pay off your creditors, you lose that deposit. If you try to pay off a creditor on your own, as opposed to through a payment dispersed directly through the DMC, they can use that as grounds to forfeit you your deposit. It's so annoying.

The effect of DMC on your credit? Hmm...not good! Having a note on your credit report that you have a "debt management plan" will make many creditors leary or resistent to give you credit, but the good thing is that this note has no bearing on your FICO score, and it WILL disappear when you complete the debt management program. But here are the very possible ways that DMC can STILL murder your credit rating:

1) If a DMC "accidentally" sends out your payment late to your creditors(despite you sending your payment to the DMC on time), late marks will be placed on your credit report by your creditors.

2) Most DMCs use your first month's payment as a "deposit" that doesn't even go to any of your creditors. If you do not make additional payments to your creditors along with sending the DMC this initial deposit, then your creditors will consider it a "missed payment" and this WILL bring down your credit score, especially if several accounts report a "missed payment" at the same time.

3) Some DMCs close out all accounts in the program as a term of the agreement. CLOSING ACCOUNTS HURTS YOUR CREDIT SCORE DETRIMENTALLY, ESPECIALLY IF YOU DO NOT HAVE ANY OTHER GOOD CREDIT TO COMPENSATE! My guy friend's score literally dropped 150pts because of this happening. If you need debt management, odds are you have maxed-out cards and/or have trouble making the on-time minimum payments...which means your credit score is low enough...so closing open accounts will make your score even lower...which will in turn make it even MORE difficult to eventually open new accounts and reestablish credit. Can you see the catch-22 here?

Some DMCs will tell you that your accounts are closed for the time that you are on the debt management plan and that they'll be reopened when you complete the program, but do not fall for this line! In reality, DMCs close out your accounts permanently and the ONLY way to "reopen" these accounts is to reapply for new accounts with your old creditors...which technically isn't the same thing as "reopening" the same accounts, especially since it'll appear as a new tradeline on your credit report(new accounts lacking age brings down your FICO score, since part of your FICO score depends on having long length of keeping accounts open).

And if your credit score already stinks(from DMC and prior), how likely do you think your old creditors will be to grant you a new account with them?...not very!

4) Although FICO regulations have made it so that your FICO score is not harmed by being in a debt management plan, working with a DMC *can* still hurt your chances to apply for new credit. A lot of creditors, even subprime lenders, will turn the other cheek if they hear that you are on a debt management plan. This will make it VERY hard to get new credit. Remember, to rebuild your credit score, it is important to either maintain old credit or to obtain new credit, so that you will have some kind of credit account for your score to be based on. And do you really want to wait several years(at the time your debt management plan will be paid off) to reestablish your credit? I think not!

Hopefully this has helped. Do not fall for DMCs! They are a bunch of scam artist losers.

Debt Management plans (in the uk anyway) works by you paying a monthly amount to your creditors each month, using the surplus income you have. I recommend you contact your local Citizens Advice Bureau if you need any help as they're free and will also contact your creditors for you on most occasions.

Depending on how long down the line you've left the situation, I think that this affect your credit rating as it will show that you have 'defaulted' on your credit report as you won't be making the agreed contractual payments (or that you are not within the agreed overdraft limit). However, once you have repaid the debt outstanding, your credit rating will show as 'satisfied' or 'partially satisfied' depending on whether you have repaid in full or partially paid by way of a full and final. The default will remain on your credit file for 6 years though.

In the UK try a christian debt counselling agent, there's no charge. Or the CCCS. They work by writing to all the people you owe money to, getting the interest stopped and negotiating a repayment plan on a monthly basis. With the CCCS they take a certain amount of your money and send it to your creditors.

Hi There,
I have been on several Debt Management Plans over the last 5 years and none of them have been any good. They promise that they will freeze interest, however all creditors have to agree to this and not all of them do. Also it depends on how much debt you have.

I have entered into an IVA and my first contact was with a company called The Debt Counsellors (Tel. 0800 652 4144) and I would highly recommend them.

Good Luck!

make sure to check the company reliability with The Better Business Bureau...www.bbb.org

Depends are you in the states or Canada ?

greenpath.com is a non-profit truestworthy credit counseling service. They can answer your questions in more detail.
However:
Initially; your credit score will take a hit, because of the nature of how these programs work (they negotiate with your creditors by mail...sometimes this can take 30-60 days..during which time you make no payments to creditors.)

But after, that its all uphill from there..in the end it is well worth the lessened stress, lower interest rates etc. Good luck.

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