Many people pile on debt, and sometimes, the debt becomes overwhelming.
Having debt is normal, and often, it is necessary to avoid a financial crisis. However, things do not always go as planned, and you may miss payments or accumulate more debt than you can handle.
This is where a debt management plan, or debt plan, can be very tempting. A debt plan is a repayment plan set and managed by a credit counseling agency. They work out a new plan for your debt by negotiating with creditors on your behalf to lower your interest rates.
Their goal is to help you pay off the severe debt in a few years, which is easier because of the lower interest rates and waived fees they negotiate with your creditors. However, this is not as great as it seems because there are plenty of drawbacks, and often, debt plans scam you into bigger problems.
If you are looking at debt plans, want debt relief in Delray Beach, or want to protect your rights, prevent repossession, foreclosure, or creditor lawsuits, always consult an experienced attorney. The Law Offices of John E. Mufson is your best option in South Florida for such situations.
That being said, let’s discuss some disadvantages of a debt plan, so you know exactly why it is not the tempting option that it seems.
Disadvantages of a Debt Plan
Here are the major drawbacks and disadvantages of a debt plan for anyone in or around Delray Beach or South Florida in general.
Taking on a debt plan may involve added costs, which people are often unaware of. These costs can include setup fees, monthly fees, annual fees, transfer fees, and more. It is crucial to understand the true cost of a debt plan and take these additional costs into account before you sign up.
Your Interest Rates May Increase
Lower interests are why most people opt for a debt plan; however, this is not always the case. If your credit score is not high enough to qualify for lower interest rates, you may end up with a rate higher than the interest rates on your current debt.
Not All Creditors Participate
While most creditors are comfortable with debt plans, there are plenty of creditors that may not participate. The final decision lies with the creditors, and they may not want to lower your interest rates or take part in your debt plan.
Moreover, secured debts and some unsecured debts, like student loans, are generally not included in debt plans. Your debt plan will not include those debts, and you have to manage those payments on your own.
You Pay More Overtime
While a debt plan may reduce interest rates, debtors often end up paying more over time. This is because repayment starts from when you begin your debt plan and may stretch for as long as seven years. You may pay less every month but, the payments will add up over a longer period.
Damaged Credit Score
Contrary to popular belief, your credit score does not improve during the debt plan period, and often, after the debt plan is cleared, your credit score may be ruined for up to a decade. A bad credit score can create massive long-term issues because your credit score is linked to almost all your life’s financial aspects.
If you miss a payment on your debt plan for any reason, the benefits of the plan go away. No lower interests, no smaller monthly payments, and your credit score is negatively affected as well.
Does Not Solve Financial Issues
Debt plans seem tempting, but they do not solve your financial problems. If you were unable to make payments before, you might not be able to make your debt plan payments as well. This can land you in more trouble than you originally had, making a debt plan completely useless.
The disadvantages of a debt plan are often hidden or misconstrued by most people, which leads them to think that debt plans are always the solution. There are better solutions, like going through the bankruptcy system to protect your rights and solve your debt problems.
Always consult experienced bankruptcy attorneys for matters related to debt, and if you live in or around Delray Beach, this means consulting the best debt relief lawyers at The Law Offices of John E. Mufson.
If you want to learn more about the disadvantages of a debt plan or the help of a qualified debt relief lawyer, please visit our website today.