Seeking Debt Management Is Not A Foolproof Solution
Many people overwhelmed by a mountain of debts seek the help of credit counselors for debt management, either as a personal choice or as instructed by a court order. Although numerous debtors have been greatly helped by the program, still a considerable number of them end up with the same, or sometimes greater debt. Despite the well-reasoned principle behind this approach of dealing with debt, there are circumstances that may help explain its high failure rate. Besides the system itself, debt management companies and debtors may also be to blame for for the lack of success in several cases. Also, the presence of scam artists that disguise themselves as credit counselors contribute to the snafu. The factors why some debt management plans fail are discussed below.
Factors That Contribute to Debt Management Failure
1. Credit Counseling Firms Owned by Creditors. A considerable number of credit counseling agencies offering debt management are said to be affiliated or backed by the creditors themselves. Thus, these agencies have the tendency to serve the interests of the creditors rather than those of their clients, the debtors. If you must seek a credit counselor, choose one that is independent to avoid any biases and for debt management to work your way.
2. Creditors Who Are Not Willing To Work With Credit Counselors. While there are creditors who allegedly own credit counseling agencies, there are also those who do not like working with these debt management solution providers. Before signing up and paying for any debt management services, ask them if they have prior experience negotiating with your creditor. Asking your creditor of their willingness to work with them is a great way of confirming this.
3. Long-Term Payment Plan. The time span of a debt management plan varies from one case to another, but often times it can run for five years. This requires financial endurance as well as self-discipline to consistently make regular payments. If the debtor overlooks a payment, most likely he will be eliminated from the program and goes back to square one, still swamped with debts with possibly no more workable option to eliminate them. A good credit counselor would have the decency to advise a debtor to seek another debt solution option if paying off his debts will take too long.
4. High Amount of Debt. Cases that require a long-term payment debt management plan, more often than not, have a very high amount of debt. This poses the same problem that have been discussed in the previous factor. Moreover, debtors who owe a great amount often do not qualify for lower interest rates, making negotiation to lower interest rates useless. Monthly payments may be lowered, but principal may be increased and payment period lengthens, as well.
5. Debtors’ Spending Habits. Debt management will more likely fail if the debtor does not improve his spending habits which are, in the first place, the root cause of the debt problem. Spending habits that have not been corrected will potentially disrupt regular payments that could eventually lead to being dropped from the program. That is why, credit counseling is an essential service that debt management companies must provide.
6. Informal Arrangement. Debt management is an informal arrangement and creditors has the liberty to back out from the negotiation at anytime.