There can come a point where credit card debt can build up to levels that become overwhelming and too much for people to deal with. Maybe they’re already getting collection calls or getting mail that has bad news of what could happen if they don’t start paying up.
When this starts happening, there are usually four options that are available. They can try to get a 1) debt consolidation loan, 2) do credit counseling and try a debt management program, 3) sign up for debt settlement or 4) file for personal bankruptcy.
The third option is usually highly discouraged since there’s a considerable risk that it won’t work and it can really mess up your credit score. The fourth option is truly a LAST resort because bankruptcy WILL ruin your credit for up to 7-10 years. The second option may be the best way for someone who has tried option one already, and it didn’t work out. A debt consolidation loan is just moving the debt from one place to another. It’s not fixing the problem. That’s why it’s highly recommended to try out a Debt Management Program from a reputable non-profit credit counseling agency.
If you’re struggling to pay your credit card debt, it may be worthwhile to look into a debt management program or DMP. Non-profit credit counseling agencies can work with you to set up a monthly payment plan with your creditors as well as teach you good financial habits along the way. They will also set up a realistic budget for you to help you manage your money properly and to make sure you don’t fall into debt again down the road. There are many benefits to a good debt management program (DMP).
When Consumers Should Utilize Free Credit Counseling:
Since credit counseling and enrolling in a Debt Management Program can take some research on the part of a consumer and has some pros as well as cons, it should be discussed with family members and well thought out. It’s not a spur-of-the-moment type of decision. What someone facing this situation should do first is consider the following questions:
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1. Are there any personal loan options that have zero percent interest or low-APR that you might qualify for to pay off your high-interest debt?
2. Can any services or subscriptions be canceled and personal assets be sold to cut down debt and then pay it off?
3. Are the creditors willing to work with the debtor to make debt payments easier by lowering interest rates, waiving al fees, and offering installment payments?
If the answer to all three of those questions is “no” and bankruptcy could be imminent, then credit counseling and a Debt Management Program is probably the only option left. In fact, most states require that consumers try credit counseling first before filing for bankruptcy.
Finding A Reputable Credit Counseling Agency:
Even though an organization may advertise themselves as a reputable non-profit credit counseling agency, some of these organizations are far more interested in making profits from consumers than actually delivering results. Now, there are honest and outstanding organizations as well which guide consumers through debt elimination, so even though unscrupulous counseling agencies have sometimes given the practice a bad name, there are legitimate wonderful services out there. Consumers should ask the following when they consider a non-profit credit counseling agency:
1. Is this agency affiliated with other reputable organizations such as the National Foundation for Credit Counseling, the Council on Accreditation, a large bank, credit union, veterans assistance organization, other government agencies, or local charities?
2. Do they have all the licenses and accreditations in the state you live in to do business in that state?
3. Do they offer budgeting, debt payment planning, tips, advice, and other actionable information before bringing up a Debt Management Program?
4. Have they been highly reviewed by others who’ve received counseling from them, or received positive ratings from local consumer protection groups or the Better Business Bureau?
If any of the answers to those questions are no, then consumers should think twice about visiting the agency. Credit counseling agencies who operate solely online or over the phone and have no accreditation or bad online reviews should especially draw red flags. Things can be done online for the most part, but it’s important to know there are actual locations that you could go to if need be.
How A Debt Management Program Works:
Before a Debt Management Program is tried, other options could still be explored. A Debt Management Program isn’t a “one size fits all” type of service. For example, if creditors or collections agencies have violated the Fair Debt Collection Practices Act, the debtor may be able to get complete debt forgiveness. But if a debt management program is the best option for you, then it should be discussed in length with the credit counselor. Using a DMP, the debtor will pay off their debt over time according to a certain schedule, usually within 3-5 years. Consumers should also ask the following before getting into a program:
1. What are the fees associated with this program?
2. Which creditors will accept the plan?
3. What happens with creditors who won’t accept?
4. What happens if I can’t make a payment?
Reputable non-profit agencies will always be upfront about how the debt management program works and how their fees are structured. They’ll also always be happy to give references of those who have used the service before. A debt management program for consolidating debt may not be for everyone, but it’s worth looking into before going through the legal hoops of bankruptcy or setting yourself up for failure with debt settlement.
Could a Debt Management Program help you?
Can You Stick To The Plan For The Long-Term?
Many debt management programs will last for 36 to 48 months or longer, depending on your unique needs. The more creditors and the total amount of debt that you have the longer you will need to be on the program. While your payment plan may offer more flexibility in managing your finances, you need to be sure that you will be able to follow through until your plan is completed. Otherwise, you could face negative consequences such as your creditors no longer allowing you to be on the program. This would erase any concessions that the creditor agreed to like a lower interest rate or waiving late fees. If you get kicked off the program, you have to begin dealing with the creditors all over again, and your interest rate will jump back up to the high rate it was before you started the program.
What Type Of Debt Do You Have?
If you have secured debt such as an auto loan or a mortgage, it will not be possible to consolidate it into one monthly payment with a credit counseling agency. While lenders may be willing to work with you to help you better manage your payments, the lender still has the right to foreclose or repossess if payments are not made. These types of lenders are not willing to work with a credit counseling agency. Either you pay them what you promised every month, or they take away your house and/or car. Only unsecured debts such as credit cards, retail store cards, or medical debt can be put on a debt consolidation program. Student loans cannot be part of a debt management program either. The lenders don’t allow it.
Could You Negotiate With Your Lenders On Your Own?
Debtors have the right to negotiate with their lenders on their own. For instance, you could call your credit card company and ask for some help or a little more time to make your next payment. They may or may not choose to help you or work with you. Student loan companies generally offer deferments or other assistance to those who need more time to pay or want to get caught up on past due payments. But sometimes you have to meet certain requirements to do so. However, if you need the professional guidance that an experienced and knowledgeable person can provide you, working with a credit counseling agency will be your best bet. They handle all of the communication with your creditors and send out proposals to see what the creditor is willing to accept each month as full payment and what concessions they are willing to give if you.
Can You Afford The Fees?
It is important to point out that there may be fees or costs related to signing up for a debt management program through a non-profit credit counseling agency. While every effort is made to ensure that you can afford to continue with your efforts to become debt-free, it’s something to consider before entering into such an arrangement.
There’s usually a low monthly service fee that’s for handling and maintaining your account. There might also be a small one-time setup fee to create your client ID and do all the hard work of contacting your creditors and getting them to agree to the DMP terms. If you are working with a reputable non-profit credit counseling agency and you don’t have the income to afford these fees, they can be waived. A trusted non-profit should never turn away a client if they can’t pay the management fees. You must fall below a certain income line to have all fees waived, but it’s definitely something to discuss with your credit counselor before signing up for the program.
Debt consolidation may be a great way to combine all of your unsecured debts into one affordable monthly payment. It may be possible to reduce your interest rates or get your lenders to waive fees or other penalties related to past due or missed payments. This can save you hundreds of dollars a month, which can then be used to pay down your principal balances in a timely manner and get you out of debt faster.
How Can A Debt Management Program Help You?
So we know that debt consolidation is a debt management program offered by a non-profit credit counseling agency. We also know that it’s where all of your unsecured debt is put together, and you make one easy and affordable monthly payment to the credit counseling agency. The agency then sends the money to your creditors on time every single month. With debt consolidation, your payment each month will usually be less than if you paid all of your bills separately yourself. You will most likely have more cash on hand to pay for your expenses and other bills.
When you do debt consolidation instead of just getting a loan from a bank to pay off your credit card debt, you will get the added benefit of advice and analysis from certified credit counseling experts. You don’t want to borrow more money to pay off money that you’ve already borrowed from someone else! That’s just moving your debt around, it’s not helping you get out of debt. You can’t get out of debt by acquiring even more debt. Your certified credit counselor will help you attack your debt with a strategy to keep you out of financial trouble in the future. Debt consolidation helps you change your current and future financial situations, not just pay off your debt.
The most important thing to remember when you are considering a debt consolidation program is to find a legitimate company. There are plenty of scams out there, and you don’t want to be a victim. Signing up for a DMP from a non-profit credit counseling agency doesn’t ensure that the company will not overcharge you for the debt management plan. Some unethical companies charge HUGE fees that will make it take longer to get out of debt. To make sure you aren’t overcharged or scammed, you should look for a company that has been in business for a very long time. They should be listed with the Better Business Bureau so you can check out any complaints that have been made against them. Do some research on them beforehand and make sure they are members of the National Foundation for Credit Counseling (NFCC) and the Council on Accreditation (COA) as well.
Before you enter into a debt management program, you should be required to participate in free credit counseling services from the company. Do go with a company if you don’t have to go through credit counseling first because it could be a red flag. You should always have to go through a free credit counseling sessions first.
The credit counselor will get information from you as far as your current level of debt, how much money you make, and how much money you pay out in other expenses. They will talk to you about a budget and long-term plan to help you get out of debt as quickly as possible and stay out of debt for life. They will help you determine whether or not debt consolidation is the right solution for your particular financial problems.
There are huge benefits to signing up for a Debt Management Program. If you work with the right company, you can save a lot of money in interest charges. You can also get out of debt much more quickly than paying your bills on your own. The most important benefit is that you will learn to manage your money better and avoid debt in the future.
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