Once you have decided to get your debt under control, you have several options available to you. The most common method is to create a debt management plan. The goal of a debt management plan is to generate a realistic repayment schedule based on the amount of money owed and your monthly income and expenditures.
Although it is possible to create a debt management plan on your own, most people chose to work with a professional credit counseling service to formulate a strategy that takes into account their own needs and those of the creditors. Certified credit counselors have experience working with creditors and negotiating on their client’s behalf. They can also provide invaluable information regarding how to recognize and change the monthly spending habits that may have contributed to financial difficulties in the first place. Once a debt management plan has be formalized, the debtor will deposit funds into an account accessible by the debt management organization and used to pay off creditors on the debtor’s behalf. Financial experts such as Suze Orman highly recommend working with debt management organizations in order to both control debt and learn essential money management skills.
There are hundreds of debt management organizations currently operating. While many are unscrupulous companies that exist mainly to line their own pockets with your monthly payments, these organizations are easy to avoid with the right information. Before choosing a debt management organization you should be well informed about the difference between non-profit and for-profit debt management organizations, what kind of assistance you can expect to receive from a legitimate organization, and the type of criteria you should use to choose an organization.
Non-Profit versus For-Profit
When choosing a professional debt management service, you have the option of working with either non-profit or for-profit organization. Many States require that debt management organizations seek non-profit status before beginning operations, however this is not the case across the board.
Financial experts recommend seeking out a non-profit debt management organization. The reason is simple: non-profit organizations pay no taxes, therefore they are not in the business of skimming money off the top of your monthly payments for operating costs. Non-profits debt management organizations may charge an enrollment fee but should offer free face-to-face counseling prior to any specific plans being made. The enrollment fee should never be in the excess of $150. This may not be the case with for-profit organizations, which are often accused of being more concerned with generating customers rather than guiding them through the debt elimination process.
Another benefit to using non-profit versus for-profit organizations is that non-profits generally do not require you sign to a contract agreeing to employ their services for a specific amount of time. As the service is free or relatively low-cost, there will never be any obligation to pay on a monthly basis. For-profit organizations might charge a small sum for their services or they may waive fees entirely depending on your financial situation.
What to expect from a Debt Management Organization
A good debt management organization will offer you a comprehensive review of your finances, encompassing both total debt owed and monthly expenditures. The result should be a debt management strategy tailored for your individual situation. The plan should be delivered to you in writing and cover all the details you have discussed with the counselor including how creditors will be paid, the total cost, long-term goals for financial solvency, and any guarantees that have been offered. Double check with your creditors to be sure that they have agreed to all of the arrangements contained within the plan.
You should avoid any debt management organization that offers consultations solely over the phone. Face-to-face interviews with a certified consumer credit counselor are more productive and informative than those conducted through other channels, at least initially. By going over your bills and pertinent financial documents in person, the counselor can modify their approach to suit specific situation. Good credit counselors will never use a one-size-fits-all approach to debt management, so always be wary of a “professional” who offers unrealistic solutions. In addition, a credit counselor will very rarely if ever be authorized to change your credit score themselves, so avoid anyone who claims otherwise.
How to choose a Debt Management Organization
There are a few key factors to keep in mind when choosing a non-profit debt management organization. The first and most important is to ascertain whether the organization truly does operate as a non-profit. Many for-profit companies advertise as being non-profit in order to dupe consumers into signing up with them. Once you have decided to work with a non-profit You can check their status with the National Foundation for Credit Counseling, which is the both the oldest and largest service of its kind in the United States. You can find their website at NFCC.org.
The goal of a reputable debt management company will always be to assist you in eliminating your debt. It’s not asking too much that you credit counselor be educated and sincere about their aims. Although national accreditation does not always guarantee honesty, it’s a good barometer of whether or not the organization is operating within the ethical practices of the consumer credit industry. The American Association of Debt Management Organizations is a prominent trade organization that demands high standards for membership.
Finally, to erase all doubts you may have about an organization’s past record, check with the Better Business Bureau. The BBB is an incredible resource for consumers as it has access to records about any organization or individual counselor’s reliability.
Sources:
FTC, IRS, and State Regulators Urge Care When Seeking Help From Credit Counseling Organizations
American Association of Debt Management Organizations
National Foundation for Credit Counseling
Debt Management 101
