"Nonprofit credit counselors are the good guys in the debt
relief industry, which is otherwise full to bursting with lies, scams
and sketchy players," according to Liz Weston, NerdWallet Columnist.
"That said, credit counselors need to acknowledge that
their signature offering — the debt management plan — doesn't work for
everyone."
"Debt management plans are touted as an alternative to
bankruptcy and an affordable way to pay back credit card debt. Borrowers
make payments to the counseling agency, which then pays the creditors.
Thanks to standing agreements that counselors have with credit card
companies, the plans typically reduce the interest rates, fees and
payments that borrowers are expected to make. Full repayment of the debt
often takes four to five years."
"The lack of disclosure about bankruptcy's potential
benefits isn't the only problem with debt management plans. Other issues
include:
—They aren't designed to tackle many other types of debt, such as mortgages, car loans, student loans and most medical bills.
—Borrowers should expect to live without much access to
credit during the repayment period. Their credit card accounts are
typically closed and they agree to not apply for new credit, whether
it's for another card, a new car or a mortgage refinance. A new account
appearing on their credit reports may lead creditors to cancel the debt
management agreement.
—There's little leeway for missed payments, which can lead to the plan's cancellation.
Some people find that they simply can't afford the
payments on debt management plans, while others drop out because of
setbacks such as job loss or unexpected expenses." Read more at:
http://www.usnews.com/news/business/articles/2016-08-01/do-debt-management-plans-work
It never makes sense to borrow for more than a 2-3 year term to finance a vehicle. While it is best to pay cash for a depreciating asset, it can make sense to borrow a modest amount for a couple of years to build up one's credit record. Showing you can pay off a loan on a regular basis with no missed payments can be a good way for a young adult to build their credit history.
