Consumer debt help is provided to consumers who are overwhelmed by debt; specifically, those with more than $10,000 in debt. Professionals help you create a plan to reduce your debt in a realistic way over time. They provide invaluable financial services to get your finances under control. Besides creating a plan to resolve debt, they also teach money management, providing the necessary financial skills to remain debt-free after the debt has been paid off.
How Debt Management Plans Work
A debt management plan, in essence, is a strategy to restructure payment to the creditor. While it is possible to negotiate with the creditor on your own to create a debt management plan, professional guidance and the use of established negotiation techniques make it easier to create a viable plan. You will benefit from the services of a certified credit counselor when you are unable to make minimum payments and your credit score has been negatively affected.
Here is a step-by-step outline of exactly how a debt management plan works:
1. Meet with a certified credit counselor to go over your finances. They will ask you about how much you owe and to which lender or creditor. They will then draw up a list of debts, including interest rates. They will not, however, include car and house payments because these are considered secured debt and are calculated as monthly expenditures.
2. The credit counselor will then make a second list. This time listing your monthly income and expenses. Your car and house payments are added to this list.
3. Comparing the two lists, the credit counselor will help you to decide on how much you can reasonably pay for your debts while taking care of your basic living expenses.
4. They will then contact the creditors and negotiate the debt down. Since creditors would rather receive something rather than nothing at all, they may either offer a discounted amount to settle the outstanding bill or freeze interest rates. Since a credit counselor has talked to many creditors before, he or she has experience in how to negotiate.
5. The result of this process is that you will have a plan to pay off your debt over a specified period of time. This is a realistic plan based on reviewing your income, expenses, and debt and creating an agreement with the creditors.
6. You will get a copy of the debt management plan in writing, complete in all financial details. You will also get a written guarantee by the credit counseling about their financial services.
7. Finally, you will enroll in a debt management plan and make a deposit with the credit counseling agency. This money will be disbursed to the creditors based on your customized plan.
Advantages & Disadvantages of a Debt Management Plan
The main advantage of a debt management plan is that your fiscal discipline will result in a time when you will be debt-free. This will give you peace-of-mind and end the collection calls. It will also empower you to create new financial decisions in the future on how to best handle money.
The main disadvantage of a debt management plan is that you will lose your freedom to spend money on many of the things you like and you will have to agree not to take on new credit lines while the debt management plan is being implemented. Since this is a long term commitment, it will require certain sacrifices to be made in your lifestyle. In addition, you will lower your credit scores because you will have changed your agreement with your creditors.
Do You Need This Financial Service?
If you are still able to make minimum payments, you may not need to undergo the fiscal discipline demanded of a debt management plan.
If, on the other hand, you are feeling overwhelmed by your debt, you can’t make minimum payments, and you credit score has already been damaged, consumer debt help will work for you.
Finally, if you are just not sure, you can always talk to a credit counselor and decide whether or not you need to enroll in a debt management plan.
Finding A Debt Management Service
Unfortunately, many unscrupulous services have arisen during these difficult economic times, making it more challenging to find an honest provider. These scam operations focus on charging a lot of fees and providing very little useful services.
The way to avoid getting scammed is to use one of these four consumer services which scrupulously check on those in their database:
The first is The National Foundation of Credit Counselors (NFCC). This is the oldest and most reputable service. The NFCC offers consumers a database of accredited credit counseling services.
The second is the American Association of Debt Management Organizations, which also has a high standard for listing debt management services.
The third is the Justice Department, which lists debt management services that comply with federal laws.
The fourth is the Better Business Bureau, which records complaints made against all types of business organizations.
Whether or not you need consumer debt help depends on your circumstances. If in doubt, you can always make an appointment with a certified debt counselor to see if you need to create a debt management plan to get control of your finances.
