Like with any financial agreement you make there will be disadvantages and risks.  We mentioned in some of our other articles that debt management is typically an informal agreement in which negotiations between the debt management advisor and creditor are made on the clients behalf.  The informal agreement is an advantage and disadvantage. 

An informal agreement means that both parties can break the agreement at any time for any reason without fear of legal recourse.  If the creditor finds the deal they made to be unsatisfactory after a couple of months, they can begin to send collection agencies after you again. 

There is also no contract signed that is legally binding.  The agreement is a word of mouth set up with notes on your account.  It could mean that years after you satisfy the agreement the company may try to get further restitution, and they may get it. 

The debt you have will affect your credit scores.  If you need to seek a debt management plan your scores could further decline.  The agreement will state that you are going to complete it with satisfaction, but it can take months before you are seeing a positive influence on your credit report for payments made.  They can also report that you paid, but under the repayment amount.  You have no recourse regarding the reports they make to the credit bureaus. 

Debt management is also not going to help increase your scores as much as other options.  Debt management will reflect when the account is in good standing; however you usually can't get a prepaid credit card or other option to help you re-establish your credit until the informal agreement is over.

Your accounts will not be frozen with an informal debt management agreement.  You may still use the account, you will still be charged interest, and the collection agency may not be called off.  Even when you reach an agreement with the company they may forget or just not call the collection agency regarding an agreement.  With an IVA or bankruptcy your account will be frozen.  There can no longer be any interest charged once the talks begin or procedure starts.

Debt management certainly has risks.  It will not solve all the problems in an immediate fashion.  While you have more flexibility and options with debt management you still have to account for certain differences in an informal agreement and a legally binding arrangement. 

Personnel with debt management companies such as ours work to get you a solution as soon as possible.  Debt management companies also work to make sure that the creditor stops the collection agencies from hounding you and will be able to offer advice towards that aspect of the agreement.

The last disadvantage is that you will have to pay the account in full in most cases.  While the debt management helps to reduce payments, you are still responsible for the entire amount of the debt.  Other options could have 40 to 100 percent of the debt discharged.