All of your credit cards are maxed out. You are receiving call after call from collectors. Even your debt management program has backfired. What to do now? There are millions of people looking for debt management companies for help. 1 in 3 avails the services of these companies. These companies prepare the best debt management program for their clients. However, even the best plan does not work for some clients.        

In a debt management program, a debt management company negotiates and schedules a repayment with a creditor. However, secured loans like mortgages are not included in the program. In this program, the consumer makes scheduled payments (most of the times it is a monthly payment) to the agency. These payments also include a small monthly fee. Now it is the agency’s job to make payments to each creditor. This program can be two to five years long.    

It appears to be simple, right? However, it has been found in a study that less than 50% of the consumers complete their debt management programs. So, why more than half of the consumers drop out? Some of them file for bankruptcy and some of them pay off their debts on their own. While we should avoid bankruptcy, sometimes it is the right choice.

One Size Does Not Fit All

Debt management companies make sure that the plan works best for the consumer. A credit counselor sits with you and takes a look at your overall financial picture. This includes your debts, the reasons behind debts and your household budget. There are benefits of availing a debt management program. Credit card issuers lower the interest rate for people using these programs. Similarly, creditors waive late. Credit accounts included in the debt program are also closed.

What Happens When Your Debt Management Program Fails?

A debt management program getting derailed due to financial issues is pretty common. Despite their debt management program being a failure, some consumers pay off their debt.

Here is what you should expect in the following three scenarios if you fall short in making your payments on your debt management program.

A Late Payment  

Many debt management companies encourage their clients to set up an automatic debit from the client’s bank account. This makes sure that all the client’s payments are made on time. This also helps the company in timely disbursement to all the creditors. A client struggling with finances can suspend the payment of that month. The client pays late with a money order or cashier’s check. Companies often waive late fees for their clients. So, you do not need to worry in the case of late payment. However, if your payment is going to be too late, do inform your credit counselor. Some creditors are lenient as compared to other creditors. So, if your payment is late by a few days or a week, this is not going to hurt you.                       

A Missed Payment

If due to some reason you have to skip a monthly payment, you should inform your credit counselor, the counselor will give you the right advice. You can resume your payment with some of the creditors the following month without any problem. However, some companies drop their clients from the program if they miss a monthly payment. If one of your creditors is strict, the counselor can advise you to pay that portion directly to the creditor.        

The client abandons his plan

You are struggling with some health problem. Or, you have lost your job. Or, you are too behind to catch up. There can be any situation in which you walk away from your debt management plan. Keep in mind that different debt management companies have different policies to handle situations like a client dropping his plan. The company will inform your creditors that your plan is no longer active. If you are having some problems, communicate with the agency. The agency can help you in getting out of this situation. Some of the consumers should consider filing for bankruptcy. By filing for bankruptcy, they can cover more debts than a debt management program. If you are planning to abandon your debt management plan, keep in mind that you may need to file for bankruptcy.

Always work with a company that considers your financial situation to prepare the best debt management program for you.