When your debt spirals out of control, a debt management plan can be a good way to avoid defaulting and regain control of your situation. A debt management plan is an agreement between you and the people you owe money to, often arranged by a third party middle man. While a debt management plan won’t make your debt go away, it renegotiates the terms to make the payments a little easier to fit in your budget.

Not all debt management plans are equal, however. And debt negotiation may not be right for you at all. After all, since you’re negotiating the original terms of your loans, the lender has the right to walk away if they aren’t satisfied with negotiated terms, potentially giving them the upper hand. However, for the lender, negotiated terms are often better than a default, giving you some leverage as well.

The important thing is to not agree on a management plan that gains you nothing. If you are no better (or even worse) under a debt management plan, you might as well stick with your original situation, or pursue alternative options, such as reorganization or discharge bankruptcy. So before you sign on to a debt management plan, be sure you have answers to these questions.

What Fees Will I Be Charged?

While enlisting the help of a credit counseling organization can be extremely helpful during debt management negotiations, many (although not all) charge fees. Many credit counseling organizations are genuinely acting in your interest an either work fee-free or charge very reasonable fees for their services. Unfortunately, however, some organizations are less transparent and work high and hidden fees into your contracts, which is exactly what you don’t need when you’re already battling a mountain of debt.

So before you sign anything. Understand what you’re agreeing to. Don’t take for granted that anyone is being transparent. And if you need to, walk out in search for someone more reputable.

How Does This Plan Affect My Interest Rates?

One of the things subject to negotiation is your interest rates. Don’t assume that your interest rates will go down. Sometimes your lenders will agree to lengthen your loan terms (lowering your monthly payment), but only in return for higher interest rates. This will, of course, end up costing you more in the long run. While this doesn’t necessarily have to be a deal killer, it is something to be aware of, and may be something you want to push back on.

How Does This Plan Affect My Credit Score?

Typically, entering into credit counseling or a debt management plan will at least be noted on your credit report. However, depending on how your management plan is structured, it can have further effects, either positive or negative. For example, if credit limits are reduced, your utilization ratio might get worse. On the other hand, if it saves you from default, and keeps you making timely payments it is a lifeline for your credit score.

Also find out how your negotiation is being reported. If any of your debts are reported as defaults, this could have severe impacts on your score.

What Loans are Included in my Debt Management Plan?

Debt management plans don’t typically restructure all your debt. Usually, for example, secured debt such as your mortgage or car loans are excluded. Instead, debt management plans mostly deal with credit card debt, unsecured personal loans, and collections. Make sure you understand exactly which debts are included in the plan so you don’t end up with more payments than you were expecting.

What Will My Payments Be, and How Do They Fit in My Budget?

Knowing how much your debt management plan costs you in the long run is important, but so is knowing whether you’ll be able to make your month-to-month payments. So know exactly what your total monthly payments will be.

If you work with a credit counselor, you’ll also likely be required to put together a budget. Even if you’re not required to do so, put one together to help you figure out how much you can pay per month.

Landing a debt management plan with payments too large to fit in your budget is obviously a bad thing, since you’ll be back to square one. But so is landing payments that fit too comfortably in your budget, since this probably means that you’ll be dragging out your debt plan longer than necessary.

Knowledge is Power

The old saying that knowledge is power is never more appropriate than when dealing with lenders. Too often, lenders count on consumers to not ask the right questions or read the fine print. However, the things you sign off on can affect you for years to come. So while negotiating the terms on your debt can be a great way to get on top of your debt, be sure you’re not signing yourself up for something you’ll regret.

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