When Does a Debt Management Plan Make Sense?
In certain circumstances, a debt management plan may offer you the best option to dig yourself out of a financial hole. You should seriously consider a debt management plan if:
- You are unable to pay all of your bills and debts and cannot keep current on your account payments, and
- You have property or income you would otherwise stand to lose to a creditor.
If you can pay off bills and debts and at least stay current on your payments, you probably do not need a debt management plan or the services of a credit counselor. You’ll likely be able to get lower interest rates with your credit card. And, if you don’t have any income or property you stand to lose, you are “judgment proof.” This means all your income and property are protected.
Types of debt included in debt management plans
If a debt management plan does make sense for your financial situation, you need to start planning out the debts you will include in the plan. Typically, you’ll only include unsecured debts — those that do not involve a creditor having a claim on any of your property. Examples include credit cards, department store cards, medical bills, legal bills, gasoline charge cards and any other loans without collateral.
Secured debts involve collateral. Examples include home mortgages, vehicle loans or any other loans in which the creditor has a claim on your property.
You should include all unsecured debts in your debt management plan. If you leave one out, the creditor will still be able to insist that you pay it back in full. If you do not, then the creditor can file a lawsuit against you and still get a court order, forcing you to pay back the loan. This, in turn, could ultimately put your property or income at risk, which is what you were trying to avoid in the first place by arranging a debt management plan.