If you're overwhelmed by debt, there's a good chance you are also confused about where to turn for help. Bankruptcy, credit counseling and debt management plans are all terms you've probably heard, but may not understand. Consulting a non-profit credit counseling organization can help you to determine what you need to do next, and while a debt management plan may be one of the solutions, it's not always the end result of credit counseling.
Non-Profit Credit Counseling
A session with a non-profit credit counseling agency can help you to determine where your money managing skills need help and what you can do to alleviate crushing debt. Reputable non-profit credit counseling agencies can help you learn to budget, educate you on financial topics and offer you free workshops and materials to supplement their consultations with you. Counselors should be certified and have adequate training.
Non-Profit Debt Management Plans
If educating you about how to handle your finances is not enough to help you get out of debt, a non-profit credit counseling agency may recommend that you enroll in a debt management plan. When you enroll in a debt management plan, you pay the credit counseling agency, which will use your payments to pay your bills, such as credit card bills, medical bills and student loans. The credit counseling agency will work with your creditors to work out lower payments, reduced interest and---in some cases---reduced balances. Debt management plans usually take several years to complete, and the result is that you come away debt-free or with greatly reduced debt. You may be required to agree not to use credit while you're enrolled in the plan, and your creditors may note the debt management plan on your credit report.
Using a Debt Management Plan
While a debt management plan can be a viable way of relieving your debt problems, it can only work if your creditors agree to the conditions, and if you can make the payments. Even if the credit counseling agency tells you they can work with your creditors, double-check with your creditors. Continue to make payments to your creditors until the plan has been accepted and confirmed by your creditors.
Choosing a Credit Counseling Agency
The most important decision you will make if you choose to seek credit counseling is the credit counseling agency you choose. While many companies advertise themselves as non-profit agencies, this does not mean that they are reputable. Beware of any credit counseling agency that does not offer free budgeting and money management advice, or that pushes you toward a debt management plan before thoroughly discussing your financial situation with you.
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