Is Debt Management Better than Bankruptcy?
Debt Management – Okay, you’re probably going to be glad to see 2021 go. You lost income. You gained debt. Cutting out lattes ain’t going to cut it when it comes to debt relief.
You want to start the new year by getting a handle on your debt. You could be good in the future if you could just get the past off your back–right?
Well, you can. It’s won’t be easy, but it can be possible. I’m gonna show you a couple of debt solutions that are similar but have some pretty important differences. I’m talking about debt management plans and Chapter 13 bankruptcies.
All debt management plans involve you making a single monthly payment to a third party, and that party making multiple payments to your creditors.
The idea is that the single payment is supposed to be a lot smaller than the total of all the debt payments, and this is supposed to make it easier for you to manage your debts–hence the name, debt management.
The main difference between the two is HOW the decrease in your monthly payment is achieved.
Debt management plans start with the creditors. Your credit counselor goes to your creditors and tries to negotiate lower payments, interest rates, and maybe even lower balances.
Then you are given a total payment that you pay the credit counselor each month, which can be up to 40% lower than the total of all of your monthly obligations.
Debt Management Pros
- You minimize credit score damage.
- You could pay less interest.
- Your balances might be lowered.
- One payment simplifies bill-paying.
Debt Management Cons
- Agency fees may chew up savings.
- Forgiven balances are taxable.
- There may be amounts due when the plan ends.
- Debt consolidation mortgages may result in mortgage foreclosure.
- The plan may not be affordable.
- Creditor participation is voluntary.
The main thing to remember with a debt management plan is that the creditors run the show. Make sure that the payment is something you can afford.
And if a debt consolidation loan secured by your home is involved, be very very sure that you won’t get in over your head–or you’ll be taking home equity that could be protected in a bankruptcy and giving it to the unsecured creditors who could be blown off in a bankruptcy.
The best case outcome of debt management is that you pay off all of your debt within a few years and experience little or no damage to your credit rating.