Creating a debt management plan helps consumers pay debt, reestablish credit and begin to regain control over their finances. However, many avoid doing so because of misconceptions about the way that debt management plans work. In some cases, people have been purposely misled by debt counselors to believe myths about debt consolidation. For others, insecurities about being unable to pay debt obligations have convinced them that they are precluded from creating a debt management plan that works.

Debt management plans explained

A debt management plan (DMP) is created with a trained counselor who is willing and able to help consumers pay debt and rebuild credit profiles. In order to do so, a consumer agrees to regularly deposit money into an account and allow the counselor to pay debt that it owed from that money. An added bonus of a DMP is that many debt collectors are inclined to lower or eliminate fees that have accrued on the account due to previous non-payments. When a counselor is allowed to pay debt on behalf of the consumer, most creditors realize the opportunity to collect what is owed to them and are willing to cooperate in making it affordable to do so.

Dispelling myths about debt management plans

While many creditors view a debt management plan positively, it is never guaranteed that they will do so. It should be clearly understood that the creditor is under no obligation or expectation of reducing amounts owed, but such is done as a courtesy at the creditor’s discretion. Therefore, existing fees should always be factored into the overall budget used to pay debt.

People are also sometimes reticent to participate in a DMP because they have heard rumors that doing so will hurt their credit. For the most part, this is false. In fact, more often than not, the opposite is true. Many creditors view DMPs as a person being serious about regaining control of their finances and repairing their credit. While it is up to individual creditors as to whether or not they will grant future credit, many are inclined to do so as they see a person taking serious strides to pay debt. Also, creating a debt management plan does not adversely affect one’s FICO score at all and, in fact, the Fair Isaac Company does not give reference to debt counseling on one’s credit report.

A Word to the Wise on Debt Counseling

Many have also been afraid of creating a debt management plan because they have been in contact with unscrupulous debt counselors. Unfortunately, charlatans exist in every industry and financial planning is not exempt. In some cases, people have been told that the best way to repair their credit is to pay an exorbitant fee to a counselor, while ignoring past debts. In these scenarios, people have trusted supposed experts to do the right thing and, instead, their credit has been further ruined as their hard-earned money has been pocketed, while their debts have sometimes worsened.

Rebuild credit and a new financial future with a debt management plan

Overall, a debt management plan is a great way to pay debt while reestablishing one’s credit. Often, perks such as lower fees on existing debt and new credit is extended, though not guaranteed. As people become more educated on options available to them to pay debt and rebuild credit, the allure of a debt management plan becomes a perfectly reasonable option and one that can realistically give people control over their financial futures, once again.

You probably won’t be surprised to hear that more complaints are lodged against debt collectors than any other kind of business. But the actual number of complaints filed may give you pause: according to the Federal Trade Commission, 78,838 people made formal complaints about debt collectors in 2008.

More and more consumers are falling behind on their bills and turning to online loans and cash advances to help stretch the budget between paydays. Naturally, the collections industry is working harder than ever to collect those unpaid debts.

And debt collectors aren’t just calling and mailing. They’re using technology like social networking sites and cell-phone texting to get people to pay.

Don’t make friends with debt collectors

A recent article on CNNMoney, describes an incident where a foreign debt collection company used a picture of an attractive woman to befriend a debtor on Facebook, the social networking site. Acting as a “faux friend” allows a debt collector to monitor your updates and keep tabs on anything you might mention online about your assets, finances, or purchases.

Read up on debt collection laws

There are strict federal laws about what debt collectors can and cannot do to try to collect debts. They must identify themselves as debt collectors. They cannot harass you or talk about your debt to anyone but you or your attorney. They cannot call before 8 a.m. or after 9 p.m. They cannot threaten to sue you if they don’t have any intention to do so. They cannot misrepresent the amount you owe.

Find out about statutes of limitation

In every state there are statutes of limitation prescribing time periods after which a creditor can no longer sue you to collect a debt. Applicable limitation periods vary from state to state, but are generally in the range of three to six years. When the limitation period passes, you still owe the debt, but the creditor can no longer sue you to collect it. The only actions that will erase your obligation to pay a debt are cancellation of the debt by the creditor, discharge of the debt in bankruptcy, or payment of the debt.

Get legal advice

Because you still owe the debt, debt collectors don’t have to stop trying to collect just because the time has passed for filing a lawsuit. They can no longer sue you, but short of a lawsuit they can still try to get you pay up. As a practical matter, they debt collectors will stop bothering you once the limitation period passes, but they don’t have to.

If you are being hounded by collectors about old debts, it may be worth getting advice from an attorney who practices in your state. If the limitation periods have passed, telling a collector that you know they can no longer sue may be all it takes to make them go away.

Don’t jump into bankruptcy

Sometimes people file bankruptcy in order to get creditors to stop calling them. But this may be an unnecessary – not to mention expensive and complicated – reaction to pressure from debt collectors.

Before you think about filing bankruptcy, write letters to the debt collectors demanding that they cease contacting you. Send them by certified mail and pay for a return receipt so you know when they are received.

Once your letter is received, a debt collector can no longer contact you except to confirm that they won’t contact you anymore or to advise you that they are taking collection action against you.

Get Legal Advice

It’s usually not difficult to get a debt collector to stop contacting you. But remember: the fact that the collector has stopped contacting you doesn’t necessarily mean you don’t still owe the debt. On the other hand, don’t be shy about demanding that collectors leave you alone. Creditor-and-debtor law is rife with legal defenses and the fact that a collector is hounding you doesn’t necessarily mean that you owe the debt.

If you’re having problems with debt collectors and you have any doubt about whether you owe the debt or how much you owe, don’t just throw money at the collectors to get them to go away. Spend the money instead on good legal advice.