Boston Bankruptcy Lawyer

Debt Management Plans

Debt management plans are a form of debt consolidation that does not actually meet the true sense of the term. In these plans, a debtor is enrolled in a debt repayment program. Meetings with a counselor who analyzes the monthly budget are mandatory. The counselor then contacts creditors and attempts to get them to lower the interest rate. One monthly payment is made to the credit counseling agency, which then distributes the funds to the various creditors.

The theory behind a debt management plan is that the overall payment each month is lower, and so the debtor stands a better chance of getting out of debt. Banks most frequently recommended this method. In the financial media, debt repayment plans through “non-profit” agencies are considered the cure-all for debtors who are in over their heads.

As great as this all sounds, it does not always work. The success of a debt management plan depends on the situation of the debtor. More than half of all people who enroll in debt management programs drop out before they have actually finished the plan.

One of the biggest problems is that the agencies receive the majority of their compensation from the bank to which the debtor owes money. Another problem is that these agencies can only have the interest rates lowered for about six months. This is the same amount of time a debtor can achieve on his or her own. Overall, it does not take a genius to see why these programs do not work for a lot of people. A number of industry critics have called them debt collection agencies in disguise.

Like any business, there are good and bad agencies out there. Even the good ones do not actually solve a problem. If a debtor walks into an agency owing $25,000, the same amount of debt will be with that debtor when he or she leaves the office.

Debt repayment plans are a useful approach for a consumer who knows his or her financial hardship will last for less than a year and does not want to deal with creditor phone calls during that period. If this does not meet a person’s situation, stronger medicine can be more useful.

Contact a Boston Bankruptcy Lawyer

If you are in dire financial straits and are considering bankruptcy, contact the Boston bankruptcy lawyers of Joshua Spirn and Associates at 1-800-975-5346 today.