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Repayment plans often less effective than choosing bankruptcy

Consumers in Washington rarely choose to purposely put themselves further into overwhelming debt, and instead usually find that emergency after emergency forces them into these types of difficult situations. Still, many feel a deep sense of guilt and responsibility related to their debt, making choosing bankruptcy a difficult task. Debt management programs are often advertised as sound alternatives to bankruptcy, but they might actually be doing more harm than good.

Debt management plans are not necessarily all bad. Consumers usually work with counseling agencies who help them create a four to five-year plan for repayment. If individuals are able to complete the plan in the prescribed time without any significant stumbles, they can usually expect their credit score to remain relatively stable. However, all of these apparent benefits have some skeptics asking, at what costs?

These types of plans are poorly equipped to handle debts outside of the world of credit cards, so if a debtor's primary sources of debt are medical bills or student loans, a repayment plan usually will not be very helpful. Additionally, since repayment plans are typically created to repay credit card companies, most people will have little to no access to new lines of credit. This means that something as simple as refinancing a mortgage might be out of the question.

Consumers who seek help from credit counseling agencies are often deprived of an important piece of information -- that choosing bankruptcy is often a faster and more economically sound solution. Repayment is not always a viable option for people in Washington who are already overwhelmed by growing debt. When filed correctly, bankruptcy can be a smart and effective approach to handling out-of-control debt.

Source: The Christian Science Monitor, "Why debt management plans don't work for everyone", Liz Weston, Aug. 30, 2016

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