A debt management plan can help you repay your debt and avoid bankruptcy. However, some providers of debt management plans can do more harm than good. Investigate credit counselors and debt management companies before agreeing to work with them. Once you begin your debt management plan, take responsibility for making sure your debts get paid off.
Debt Management Plans
A debt management plan is a repayment program negotiated and supervised by a third-party debt management company. Many debt management companies, but not all of them, are also credit counseling agencies. In a debt management plan, a representative of the company that oversees your plan will negotiate lower interest rates and minimum payments with your creditors. Each month, you'll send an agreed-upon payment to the plan provider, which will then forward your payments to creditors until your debt is cleared up.
Poor Counseling and Education
One of the most significant dangers in debt management plans is that they do not always assist you in learning to manage your finances. A good credit counselor should work with you on budgeting, money management and provide you with information about credit and typical budgeting pitfalls. Another problem is that companies offering debt management, even credit counselors, don't advise you about your bankruptcy options. While nobody wants to file bankruptcy, it is a legitimate financial decision and sometimes a more feasible option than debt management. When looking for help with overwhelming debt, it's important to investigate all your options before taking action.
Your Creditors Don't Get Paid
When you enter a debt management program, you are relying on a third party to pay your bills. The problem with this is that you can't always make sure that your bills are actually being paid. There have been cases where debt management companies have failed to pay creditors even though they collected money from the debtors to do so. If a debt management company doesn't make your payments, your creditors could report your delinquencies to the credit bureaus and turn your account over to a collection agency. It's not enough to just check your statements from the debt management program each month, you need to check your creditor statements as well to ensure that the plan administrators pay your bills on time.
Fees
Some debt management programs charge a lot of extra fees, which means you'll pay a lot of extra money in addition to what you owe to your creditors. Ask to see a written statement of any fees charged by the credit counselor or debt management plan provider. Check your plan statements regularly and question any charges you do not understand.
Selecting a Good Company
Ideally, your debt management program should be part of a non-profit consumer credit counseling agency that is licensed in your state and staffed by counselors who are certified by the National Foundation for Credit Counseling. You should also contact your local Better Business Bureau and the Attorney General's office to make sure that they have a clean record.
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