Consumers facing financial difficulty and unable to pay their bills each month may seek a debt management plan to help them handle their financial nightmare. Credit counseling organizations usually offer to help the consumer set these plans up and manage them. Some of these are non-profit organizations that offer counseling and education as well as setting up payment plans. People who have fallen into financial difficulties often benefit from information on how to keep the situation from happening again.
The basic concepts of a debt management plan are easy to understand. Essentially, the company consults with the consumer about the debts they face and their income. They then contact the organizations that money is owed to and set up a payment schedule. The customer makes payments to the debt management company and that company makes the payments to the organizations that are owed money.
Know Before You Go
When seeking a company to help with debt management, you should first find out the answers to some basic questions. Is the company licensed to offer services in your state and do they offer free information? You should have to pay to find out what services a company can offer. Many companies will help with budget counseling and other courses so that they aren’t just helping you get out of debt once, but helping you plan for a lifetime. Check on the qualifications of the counselors and what training or accreditation they have. How are these employees paid? Some may offer counselors commissions for selling you extra services. You’ll want to know this before signing up with a company. Have other customers been satisfied with the services provided by the company. Check with the Better Business Bureau for complaints or unresolved issues.
Keep in mind that these companies usually don’t offer assistance for free. Check to find out what fees they will charge you. Is there a start up free or monthly fees or fees for the counseling services? Never sign a contract or agree to a contract based on a phone call. Always make sure that you have a written contract that covers everything that was promised to you during a phone interview.
Once you’ve established a debt management plan, make sure that you keep in contact with both the debt management company and your creditors. You still need to ensure that your payments are being made in a timely manner and that everything possible is being done to repair your credit. Remember, debt management plans are just one step in learning to manage your finances and maintain your credit record. Take this as an opportunity to learn and establish new habits.
Watch Out for Predatory Lenders
Debt consolidating companies can take advantage of you by charging high fees for refinancing. These fees can reach the state maximum for mortgage fees and those companies that want to take your money will wait until you are backed into a corner and forced to refinance. Then, they will offer help but by that time, you may be losing your house so you will offer to pay any allowable debt consolidation fee. What if you didn’t have time to shop for another lender with lower fees or weren’t even aware of them? This is known as predatory lending and is rare but you can never be too careful when it comes to debt management.
