People are often so confused or uninformed about debt management plans in the US that I wanted to share some truths with you. Here are the five biggest misconceptions people have about debt management plans, in no particular order.
Since the DMP terms are really dictated by the creditors a debt management plan is not really designed to get you out of debt.
A true get out of debt plan would be created using your circumstances as the starting point and then crafting a plan to allow you to get out of debt from your starting point.
The DMPs of today, with creditor dictated terms, doesn’t work like that. It tries to get you out of debt using what the creditor wants as the starting point.
A debt management plan from a nonprofit, non-profit or not-for-profit charity is not any better or worse than from a commercial or for-profit company. Being a nonprofit credit counseling group does not change the basic security measures necessary for a safe debt management plan.
A nonprofit charity like a consumer credit counseling office is not much different than a commercial company. Except for the following major issues.
The nonprofit credit counseling company gets paid for collecting money from you on behalf of your creditors and does not want to “rock that boat” and fight back against creditors if that will reduce their favor or funding.
The nonprofit credit counseling company “pretends” for the most part to be a charity when in fact they generate the majority of their income as debt collectors.
The majority of people that participate in debt management plans do not make it to completion and thus do not get out of debt using a debt management plan. This is not really a fault of the DMP provider but that a debt management plan takes years to complete and the debtors circumstances can change along the way.
The majority of Chapter 13 bankruptcy plans fail to complete as well for the exact same reasons. The failure of debt management programs is due to life and time, primarily.
Strictly from a time point of view, bankruptcy can be a better option. When you file bankruptcy the credit report recovery clock starts ticking immediately. In a debt management plan the history of you plan and payments can remain for longer since it can be reported from the date of your last payment.
Bankruptcy also allows many to get a fresh start and a second chance to start over. Recovering from a bankruptcy is hard but not impossible and the breathing room people get after bankruptcy is often just what they need to move forward, faster.
The charitable debt management industry fails to inform you that they are paid by the creditors to collect money from you. There is no way around the fact that this can cloud their assistance because they are trying to please their pay masters and the clients at the same time. Which do you think gets the higher priority?
When you pay for debt help the company you hire is motivated to work for you. You are the client and there is no confusion about who the allegiance is owed to.