Debt Management
Debt management companies help consumers get out of debt through careful budgeting and management of funds. Debt management plans, or DMPs, manage your debt by charging you a monthly payment, controlling your finances and distributing your payment to your creditors.
Typically, the companies can get you a lower interest rate or a lower monthly payment because they have relationships with your creditors. In fact, most nonprofit debt management companies get their funding from creditors, a fact that they fail to advertise. They might also decline to mention that some creditors will not reduce the interest and monthly payments for certain debts.
Debt management plans can be offered through different kinds of companies and programs. You can find debt management plans though consumer credit counseling agencies, in conjunction with debt consolidation or through a debt management company.
If you do decide to sign up for a debt management plan, make sure you can afford it. You can be kicked out of the program for missing one monthly payment. If you can afford a debt management plan, you might want to consider repaying your debts on your own. Debt management can lower your interest and payments slightly, but it will damage your credit. You can also be faulted if the company managing your plan fails to pay your creditors on time.
The Federal Trade Commission has sued illegitimate counseling agencies for deceiving clients, falsifying their nonprofit status and profiting off of debtors. It is very important to do your homework before committing to a debt management plan.
Be aware of companies that charge high fees for their services, especially high upfront fees. Some companies pressure clients into paying “voluntary fees.” If a debt management company claims they can get you out of debt before reviewing your financial information and understanding your situation they may not be a legitimate company. Nonprofit debt management companies are required by law to provide financial education to their clients, something to keep in mind if you are considering this debt relief option. If you have to take on more debt to pursue debt relief, then it’s best to look for an alternative solution.
