Also called credit counseling, debt management is a popular way of dealing with overwhelming credit card debt. In some ways, the strategy seems too good to be true. Is it? Here are things you should know about debt management programs.
Don’t be Fooled by “Non-Profit”
Some debt management companies are organized as not-for-profit concerns, which makes them sound like your interests are their main interests. While such companies may indeed be helpful, they still seek to make money, usually from nominal fees.
You Can Do It Yourself – But Should You?
Debt management companies essentially bargain with your creditors – typically credit card issuers – to give you better rates and terms. Yes, you can do this yourself, since all creditors want to get something rather than nothing, which is what they’ll get if you file for bankruptcy.
However, it’s usually wise to leave such negotiations to a reputable, experienced company that can handle your situation more quickly and seamlessly. Try Freedom Debt Relief for established credit card relief services.
Your Credit Won’t Necessarily Suffer
It’s not always true that debt management programs damage your credit scores. In fact, if you have multiple late or delinquent payments, debt management can help your scores.
Now, it’s true that some creditors will shutter your accounts while you’re in debt management, including those with good payment histories. In any case, whether your scores rise or fall in the near term, repaying your debts is the best move for said scores. It’s surely better than continued late or missed payments.
No More New Credit
While you’re in a debt management program, you won’t be able to open new credit accounts. While this makes sense while you’re working to relieve yourself of debt, be certain that you won’t need, say, a car loan during this time.
Payment Takes Awhile
Your creditors may have to wait up to two months for their initial payment, which could ding your credit score. You also might start getting collection calls in the period before payments are issued. Creditors usually stop harassing you, however, when they learn that you’re enrolled in debt management.
Your Interest Rates May Drop
Contact with your creditors by your debt management company usually results in immediately lower interest rates. This can be major if you’re currently paying at least 17% on your debt, and particularly if you’ve been late on at least one account.
Fees Could Be Waived
Once you’re in the program, your creditors may agree to scrap future late fees while they tweak your payment schedule. This could save you around $40 for each creditor monthly.
Just One Monthly Payment
A top benefit of debt management programs is that they consolidate your payments into just one each month. Once you make the payment, the company will allocate your funds to creditors.
You Get to Avoid Bankruptcy – If You Want To
Debt management is a clear alternative to bankruptcy, it’s true. Note, though, that you must enroll in debt management or credit counseling prior to filing bankruptcy. This means that if, even through debt management, you’re unable to pay your creditors, bankruptcy remains an option.
Enroll, Then Forget About It
Well, not quite. But the fact is that if you allow your debt management company to cover your debts, you don’t have to think much about them. In just a few years, your debts will go poof! Of course, you can always expedite the payoff process by adding more money to your payments when you can.
So, chief among the things you should know about debt management programs is that the process works. Naturally, there are some demerits, but then again, you’re in a sticky situation. Size up your finances against debt management … and do what’s best for you.