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.

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Poor Debt Management Can Affect Generations

Most who struggle with personal finance, debt and credit issues do so because they never learned how to properly budget money. It is likely that these same people have more than one parent, siblings and other close relatives who also have personal finance debt issues. Most never learned to differentiate between needs and wants or are not very disciplined in spending accordingly. Left unchecked, such behavior has caused individuals to fall deeply into debt. Just as in situations of physical abuse and substance abuse, the dysfunctional handling of debt and credit is often passed down to future generations. Poor financial decision making, however, is much easier to rectify than the aforementioned dysfunctions.

Everyone Has Control Over Their Own Financial Future

In looking at personal finance, debt and credit, it is important to understand that an individual has ultimate control over their destiny in any of these arenas. While many feel as though their spending is out of control, the exact opposite is true. Even if there are psychological reasons as to why a person’s personal finance, debt and credit are spiraling out of control, as is the case with shopaholics or excessive gamblers, the truth is that, with help, it is still possible to maintain control over one’s personal portfolio. Simply, a person must recognize that they have a problem, that this problem is a threat to their future and that correcting the problem is fully within their control.

Debt Education is the Answer

Once a problem is realized, a person can then begin to take steps to repair their personal finance debt by becoming educated on financial topics. More than ever before, access to financial education topics are readily available to everyone. From personal finance budget software, to local community classes, to library books written by respected authors, a full financial education is within everyone’s grasp and most resources are free of charge. Keeping this in mind, a great place to start one’s financial education is with the basics of understanding how to create a personal finance debt budget and to understand how credit works. This can be learned by combing the Internet and reading various articles written on the subject or books can be checked out from the library to gain a basic understanding.

Low-Cost Debt Counseling is Also Available

Also, several non-profit organizations offer low-cost debt counseling services. Contacting one’s local Chamber of Commerce or related public agency can help locate such services. In doing so, a debt counselor can help with creating a budget, consolidating outstanding bills and offer further resources helpful to one who is determined to regain control over their personal finance debt.

No More Excuses

No matter how a person learned to mismanage personal finance, debt or credit, there is no excuse for this type of behavior to continue. Nor is there any reason for such economic woes to be passed on to future generations. Instead, a person who is truly interested in correcting bad habits and living a stress-free financial life, will take this advice to heart and begin, immediately, to learn all there is to learn about handling their finances more responsibly.