Debt Management Programs

Debt Management Programs and Debt Management Companies
Getting out of debt is not an easy feat. It not only requires determination and discipline; but the intervention of a professional counselor as well. However, debt management is not a simple process. You have to choose which program suits you best and pick the right team to help you get back on your feet. Credit counselors play a vital role to your success in overcoming debt but you have to make sure that the agency you are dealing with is licensed, reputable, and recommended.

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Debt Management
An author explained the concept of debt management in this perspective: debt management involves a designated third party assisting a debtor with repayment of his or her debt. There are plenty of credit counseling agencies that offer debt management plans to help individuals loaded with debt and damaged credit score. Debt management is also said to be the routine practice of spending less than one is earning. The debt management plan is by definition a structured repayment plan arranged by a designated third party, either by court order or by one’s own volition.

Debt Management Program (DMP)
A debt management program exists for the purpose of curbing your debt and offers you better alternatives than ending up in bankruptcy or foreclosure. This program can be utilized as a great and effective tool to manage your existing debts with the goal of reducing your debt balance. Through this program, you can arrange or let a professional arrange your system of payment and pay your dues on time and see your debts being dramatically reduced over time. A debt management program includes debt counseling, debt consolidation, and debt settlement.

Knowing What You Need
As there are several debt management programs to choose from, knowing the features of each will give you more information as you decide on which suits you best. There are three debt management programs to choose from.

The first is debt counseling. This is handled by certified credit counseling agencies that are professionally trained to aid you in making the right decisions about your growing debt and get your finances back in good shape. Through this type of counseling, counselors will educate you on debt and how it affects your credit score. Counselors will also guide you in creating an effective budget plan that will help you avoid the pitfalls of future debt. After assessing your financial standing, the credit counselor may recommend you to either go through debt settlement or debt consolidation.

The second program is debt consolidation. Otherwise known as a debt management plan, debt consolidation helps you pay off your debts “with a single affordable monthly payment” which reduces a good number of your payment schedules. Many credit counseling agencies also undertake debt consolidation for their clients. Once you enter into a debt management plan, the credit counseling agency will in turn talk to your creditors to negotiate lower interest rates and eventual waiver of some fees. Through this system you, as a debtor, can make a one-time payment every month for all your debts, which in turn will be remitted to your creditors in a timely manner. Counselors will also advise you to be prudent in your spending and avoid incurring additional debts.

The third is debt settlement. Through this plan, you are able to negotiate with your creditor to settle all your outstanding debts with a one-time payment that both of you agreed to. The amount settled agreed upon in debt settlement is usually lower than the actual debt. Creditors find this favorable to them. They would rather recover part of what you owed them instead of losing it all to bankruptcy should you file one. However, this damages your credit score and it is advised that you seek counsel from a professional credit counselor before choosing this program.

Finding A Debt Management Company
The customary practice for reputable credit counseling agencies is to employ counselors who are “certified and trained in consumer credit, money, debt management, and budgeting.” Those that are nonprofit are bound by law to provide debt education and counseling. However, the Federal Trade Commission took cognizance of the fact that there are credit counseling agencies that misrepresent their company. Some impose high fees without disclosing all of it and others persuade clients to make “voluntary” contributions which will place them deeper into debt. Others directly suggest for clients to resort to debt management without looking at their financial condition first. Some in the guise of being nonprofit companies lure clients by their misrepresentation.

What To Look For In A Debt Management Company
To avoid being victimized by scheming companies, here are some guide questions you can ask your potential credit counseling agency, as laid out by the Federal Trade Commission:

  1. Ask about their services. A licensed debt management company usually offers a wide range of services to make the process more convenient for their clients. Check if the company’s credit counselors are professionally trained to advise clients about their finances. What counselors must do during your session is to go through your financial condition with you and help you come up with you own financial plan and avoid incurring future debt. Sessions like these usually last for an hour. Stay away from debt management companies that lure you to resorting debt management right away before they study your financial situation. There is no one-size-fits-all plan when it comes to managing your finances. (If you were previously under a debt management plan or DMP which closed down, you should ask the credit counselor if there are measures to help restore the benefits you had on your previous DMP.)
  2. Ask if they are licensed to offer such services in your area. Customary practice among many states require organizations to secure a license before they can engage in such business within the state’s territory. See if they do.
  3. Ask if they have free information. Part of the business is to advertise their services. Inquiries about the nature of their business and services must be free of charge. If the company you inquired into is charging fees for such information, better skip to another.
  4. Ask about the printed agreement. Rule of thumb: if it is not in paper, it does not exist. Although contracts may be verbal, it is better to have proof of your agreement with the company you choose to engage their services. Make sure that the promises they have given you are put into writing and obtain a copy of that. Read all the contents of the contract before you sign. If they discourage you from reading the terms thereof, consider looking for another company.
  5. Ask about the training and expertise of their counselors. Preferably choose an organization whose counselors are trained and accredited by an independent organization, meaning those who do not hold affiliations with your creditors.
  6. Ask about their customer feedback. These can be done by asking information from your State Attorney General, local consumer protection agency, and Better Business Bureau. Normally, these organizations have information whether the company you are interested in has a history of customer dissatisfaction or feedback.
  7. Ask about their fees. Request a detailed quote of their services. Also inquire if all the fees are inclusive in the quote. If you think you cannot afford their fees, ask if their company has a policy in reducing or waiving fees for persons in your situation. If they cannot do that for you, try to look for an organization who does.
  8. Ask how their employees are compensated. Some companies may provide commissions to credit counselors who succeed in recommending DMP to their clients. Ask if the organization’s employees are receiving such commissions from creditors. If they cannot provide you with such information, start looking for another organization who can disclose that information.
  9. Ask about their confidentiality policy.
    Since the nature of these organizations’ job is to assess sensitive information about you, check if what measures they uphold to keep that information private and prevent abuse.
DebtFree.net does not assume or pay any debt, nor does it give legal advice, offer credit repair or help stop creditor & collector calls. DebtFree.net provides information regarding various debt relief options as well as referrals and connections to debt relief companies. These companies specialize in specific debt relief categories, including debt management plans through credit card counseling, debt consolidation, debt settlement, debt negotiation, and debt mediation.