If you’ve ever been overwhelmed debt, you know how difficult it can be to regain control of your finances without professional help. Debt management is an invaluable financial service available to you if you’ve found yourself in such a position.
In a nutshell, debt management is a financial service provided by both for-profit and non-profit organizations for individuals who are carrying over $10,000 in debt. The goal is to help these individuals eliminate their debt in a realistic time frame. In addition, debtors can learn valuable money management skills that will help them remain debt-free after the repayment has been completed.
The most common method employed by debt management professionals to help deports is what is known as a debt management plan. There are both pros and cons to enrolling in a debt management plan. Whether it’s the right choice for you depends on your current financial situation.
Debt Management Plans
The most common repayment method offered by debt management services is called a debt management plan. Basically, a debt management plan is a structured repayment strategy created by a certified credit counselor in conjunction with the debtor. While it is possible for a debtor to create their own debt management plan, using a third-party service is recommended once the debtor has become unable to make minimum payments and has suffered damage to their credit score.
There are a few steps to making a debt management plan. The first is to meet with a certified credit counselor who can review your finances with you. They will first look over the amount of debt you owe and to which creditors. They will then compile a list with the total sum, interest rates, and any other pertinent information. Keep in mind that secured debt, such as car and home payments, cannot be enrolled in debt management plans and must be factored in as monthly expenditures in the second step.
The second step to a debt management plan is creating a list of monthly income and living costs. This will help your counselor get a clearer view of what you can reasonably afford to repay each month and still pay for rent, food, and the like.
The final step is to negotiate with your creditors and strike a deal that will work in your favor. As most creditors would prefer to receive payment rather than chase debtors up for money they cannot repay, they will usually agree to freeze interest rates or settle the debt in order to reach a repayment agreement. The debt management professional will act as advocate for you.
Finally you will have a well-thought out, realistic plan to pay down your debt over a set period of time. A reputable credit counselor should give you a copy of this plan in writing with all of the financial details, including any guarantees they may offer, contained therein. Once you enroll in the plan, you will deposit an agreed upon amount with the debt management company who will then disperse it to the appropriate creditors.
Debt management requires you to be honest about your financial difficulties, as well as about your budget. Many services will require you to forgo signing up for any new credit lines while enrolled in the program. It is a long term commitment, but you will have the satisfaction of knowing that you are responsibly paying off your debt in a way that works for your budget.
Do you need Debt Management services?
Simply because you are feeling overwhelmed with debt doesn’t necessarily mean that you are ready to seek professional help. A good rule of thumb to follow is that if your income still allows for you to make a little more than your minimum payments each month and still be able to meet your living costs, you should not seek debt management services. This is because enrolling in a debt management plan will lower your credit score due to the settlement deals you may have to make with your creditors. You are in essence breaking the contract you have previously made with them. Avoid doing this unless absolutely neccesary.
However, you have already suffered damage to your credit score then you may be eligible for debt management services. The only way to know exactly what debt relief strategies will work for your situation is to seek out professional debt management services. A counselor will be able to review your situation and offer a solution tailored to your needs.
How to find Debt Management Services
There are many options to choose from when seeking a debt management service, but is not a decision that should be made without the appropriate information. In recent years there has been an increase in unscrupulous debt management services that are more interested in taking customer’s money than actually paying the money out to creditors. It’s easy to avoid these scammers if you know what you should be looking for in a debt management service.
The best thing to do is to start searching national credit counseling databases for local debt management services. The National Foundation of Credit Counselors is the oldest service of its kind in the country. They offer a searchable database of NFCC accredited credit counseling services. Similarly, the American Association of Debt Management Organizations has a database of reputable organizations. Both these organizations have high standards for debt management services admitted to their ranks. Finally, the Justice Department also has a list of debt management services that have been found to comply with federal law regarding such organizations.
Debt Management 101
Find a credit counseling agency through the American Association of Debt Management Organizations
Find a Counselor through the National Foundation for Credit Counseling
Justice Department approved Credit Counseling Services