4 advantages and disadvantages of debt management

Written by Guest Blogger: James Vohwinkle

If you are one of those persons who are overwhelmed with debt but don't know how to get out of it, then debt management plan can help you to get rid of debt. It is a method which helps you to pay back the unsecured debts( credit cards, personal loans, store cards, etc). Normally, a third party organization evaluates the debtor's outstanding balances, income, expenses, and then negotiates with the creditors to reduce the interest rates and payments.

Advantages of debt management:
Reduced payments: You have to pay only what you can afford to pay after paying for your necessary expenses (food, bills, rents, etc). The debt advisers can negotiate with the creditors to reduce the total amount of debt. This happens only when you can't pay back the full amount over a fixed period of time.
No need to deal with the creditors: You no longer have to deal with the creditors. The debt counselors will deal with the creditors on your behalf.
One monthly payment: You have to make only one monthly payment. It is easier to keep track of one monthly payment instead of several payments that you have to make to different creditors.
Flexibility: If your income is reduced then the debt advisers can re-negotiate with the creditors so as to lower your payments. On other circumstances, you could be pressurized into bankruptcy if the creditors didn't agree to the reduced payments.

Disadvantages of debt management:
Increases term of payment: You have to make payments over a longer period of time as your monthly payments are reduced. This means that your total payment is more.
Informal arrangement: The debt management plan is an informal arrangement so the creditors can change their mind at any point of time.
Creditors may still contact: The creditors may still contact you directly on few occasions.
Difficult to obtain further credit: You might not get further credit in the near future.

The debt management plan can help the debtor to manage his debts only when he controls his overspending habit.