A wide range of quality exists when it comes to the debt management field. If you are in the market to use a debt management firm, you can find legitimate ones. However, if you aren't careful, you could wind up with a second-rate company that overcharges you or even one that is a plain scam. Disreputable companies are successful at ripping off consumers, which is why you might have to wade through a minefield before you find a legitimate debt management company to help you.
How It Works
When you enter into a legitimate debt management plan, your counselor is supposed to try to negotiate a deal with your creditors. Typical negotiations might be to lower your interest rate or to waive all late fees. After that, you deposit money in an account set up with your debt manager. Your debt manager then pays your creditors. This process can take three or four years to complete.
Scams
A bogus company tells you the same thing, namely that the counselor who works with you will use the money you deposit to pay your bills. Only it doesn't happen that way. A bogus company honors the first part of the agreement, taking your money, but not the second part -- distributing your money to your creditors.
Where to Look
Your best bet in finding a reputable debt management company is to go through the Association of Independent Consumer Credit Counseling Agencies, also called the AICCCA, or through the National Foundation of Credit Counseling, also called the NFCC. Agencies that are members of these organizations charge low fees and usually offer educational and counseling services so that you don't wind up in trouble again.
Legitimate Companies
Before you enter into a debt management plan, a legitimate agency interviews you to determine whether debt management is even your best option. With the NFCC, only about one-third of clients qualify for debt management, and only about one-fourth qualify with the AICCCA. A red flag should go up with you if a debt management firm tries to push or enroll you into a plan without determining whether debt management is the right course of action. If the first thing a company wants from you is authorization to take money from your account, this company is probably one that you should avoid.
Ask Questions
Before you hire a debt management company ask some questions. Ask whether the organization can teach you money management and budgeting skills. Find out how you can make sure the company is paying your creditors on time. Ask what your monthly payment will be. Make it a requirement that you see detailed account statements. Finally, if you do sign up with a company, before you send any money; contact your creditors to confirm whether the debt management company did contact them and whether the creditor agreed to the plan.
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