Credit cards are the reason a huge percentage of the world is in debt. Of course, they can be used responsibly and repaid on time, but this is not generally the case. With low minimum payments, many people take the chance that they can repay before the interest becomes overwhelming. Also, sometimes credit cards are the only way out of an emergency. You may have gotten deep into debt because of unexpected events such as a big leak in your roof or a medical emergency and using your credit card was the only way to pay.
Credit Card Debt Management
Debt management is a strategy to get out of debt. It is recommended by financial experts as the best way to gain control of your finances and maintain a credible credit rating. Credit card debt management is a bit different because it is unsecured debt, which means there is no collateral involved. Unlike secured debt, your creditors cannot take your house or car if you fail to make your repayments. What they can and usually do is to raise your interest rate and minimum payment so high that it becomes impossible to pay.
A debt management plan is especially useful for unsecured debt. You approaches a professional debt management company and they work together to make a repayment plan that will get you out of debt in a way that you can afford. Also, the debt management counselor will negotiate with your creditors, in this case a credit card company, and can even have the interest reduced as well as the amount owed.
How Can Debt Management Help?
This may seem too good to be true, but a good debt management company will help you in a very practical way. Credit card companies are happy when their clients want to repay their debt. They are willing to negotiate terms for repayment to make it easier just to avoid the high cost of going to court to get their money. Professional debt counselors have experience and knowledge in this field and in many cases have worked with the same creditors for years. All of this will be to your advantage, if the debt management service is working for you.
What is the Debt Management Process?
The debt management company will first make a list of your debts including interest rates and payment schedules for each creditor. They will also need to know your monthly income and living expenses. With this information the debt counselor will be able to know how much you can afford to pay towards your debt and still have enough for living costs. They take this to the creditors and negotiate a repayment schedule that is acceptable to both. The debtor agrees to deposit a certain amount of money in a bank account that the debt management professional can access. They withdraw the money to make the payments to the creditors.
Debt Management Scams
When you look online for a debt management company you may see many promises that seem great. For example, they promise to make you debt free in three months, or they guarantee to reduce your credit card interest rates. They may also promise to reduce your debt by 50% to 70%. All of these promises are false. It is better to look elsewhere than to get attracted to these scams.
Any reputable debt management company knows that a reasonable time to become debt free is 48 months. Also, they may be able to negotiate with your creditors and reduce your interest rate, but there is no guarantee that this will happen. If they ask you not to contact your creditors, find another company. They don’t want you to know that they aren’t paying your bills. Finally, promising to reduce your debt by a certain percentage without looking at your financial information is just plain irresponsible.
Avoid the Debt Management Scams
The first thing to notice is if a debt management service asks for a large up-front fee. No reputable company will ask for the enrollment fee, which should be between $50 and $150, before giving you a free consultation. The Federal Trade Commission (FTC) had proposed that fees only be charged after a debt settlement is made. This is an effort to regulate unscrupulous people who are preying on debtors who are already in financial trouble. Also, it is the duty of the debt counselor to educate you on financial management so that you don’t get into debt again. If the company asks you to view a video or read a book, they don’t plan to help you themselves.
The National Foundation for Credit Counseling (NFCC) is the oldest organization for debt counseling in the United States and offers a search tool on their website to help people fine a reputable company. The American Association of Debt Management Organizations (AADMO) will also help on their website. Any debt management company that is certified by either of these organizations will be ethical and trustworthy. If you have a doubt about a company that you like, you can check with the Better Business Bureau (BBB) to see if they have given that company an endorsement or review. They will know if that company is all right.
