What exactly is debt management? When you work with a debt management firm, you’re empowering it to negotiate on your behalf, consolidate your debt into a payment plan and then pay it off over a certain period of time. You deposit money into a special account controlled by the firm, which then uses this money to pay off your creditors over a pre-determined period of time. The firm will negotiate with your creditors for lower interest rates, a more affordable monthly payment or even eliminate late fees and penalties.
The main benefit of working with debt management companies is the lowered interest rates. Instead of paying all your credit card bills separately, since the firms usually get their payments from your creditors, they’ll settle your bills and lump them together into one payment. If possible, choose a company with low-interest loans so that you’ll be able to lower your payments and get them paid off faster. Don’t forget to factor in other fees that are associated with paying your debts in full such as application and assessment fees and annual fees. These can eat up even more of your budget.
Another benefit of working with debt management companies is that they arrange for a weekly meeting with your creditors to discuss your outstanding debts. At this meeting, they will negotiate for you to make smaller monthly payments to clear up any late fees or penalties that have accumulated. Often, these negotiations result in reduced interest rates or extended payment periods. Some debt management companies charge fees for the services they provide, but the amount of money you could save if you didn’t have to come up with the money to pay off your debts can more than make up for the fees charged.
There are two main types of debt management companies. There are government or non-profit organizations, and there are for-profit or profit companies. Government agencies often provide lower quality, although some of these agencies offer free credit counseling. Non-profit organizations tend to provide a higher level of service, but the majority of these organizations operate only after receiving payment from creditors.
The services provided by non-profit debt management companies tend to be better, but they are also more expensive. Non-profit counseling programs usually charge a monthly fee, but some also charge a per-minute fee for the counseling that they provide. For-profit programs usually offer a variety of services, including financial education, consolidation, settlement of loans, and application assistance. Some for-profit companies also provide counseling free of charge, although their fees are usually much higher than the fees for nonprofit agencies.
Before enrolling in a debt management program, it’s important to check out the agency itself. Make sure that the agency has a license to operate, and that its employees are thoroughly trained and experienced in credit counseling. Check the credentials of the credit counselors who will be working with your creditors. Most credit counseling agencies require their counselors to be members of the National Foundation for Credit Counseling (NFCC) / Association of Independent Consumer Credit Counseling Agencies (AICCA) Credit Counseling Agencies.
Before you agree to a debt management plan with your creditors, be sure to research the different programs that are available to you. Explore all of the different programs offered by various debt management companies, and select the one that best suits your needs. Remember, each plan has different payment options, as well as different ways to pay off debts. Don’t be afraid to ask questions about the program as you would with any other professional help.
Some debt management companies charge a monthly fee for the services they provide. Others don’t charge anything at all. You need to understand how these fees are structured. Some companies may start out with a monthly fee, but then charge their clients an annual or monthly fee for the debt management programs. Others don’t charge anything at all. It’s important that you understand exactly what each monthly fee covers and make sure that it is in agreement with the services you will receive.