This article talks about how debt management agencies work. Many people confuse debt management companies with a consolidation plan, but it is not the same. Usually a consolidation loan pays all your debts and you pay the money only to the company that granted the loan.
Debt management companies, which are more common and this is what people refer to as consolidation (debt consolidation), help them make a single payment to their office and they are responsible for distributing payments to other companies . They don’t do it for free, they charge a monthly fee, usually $ 40 a month to do it. These companies work, but if you can handle your payments on time, for example with PowerPay, you would do the same job, but saving $ 40 a month.
In these plans, you deposit money monthly to the credit counseling agency. The organization uses its deposits to pay off your unsecured debts, such as credit card bills, study loans, health care bills, according to a payment program that the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates and exempt you from certain charges, but check with each of your creditors to be really sure they offer the concessions described by the credit counseling organization. For a debt management plan to be successful, you need to make regular and timely payments and it usually takes 48 months or even more to be completed. Ask your counselor to calculate how long it will take to complete the plan. Also, during your participation in the plan, you may have to commit to not requesting or using additional credit.
Is a debt management plan the right choice for you?
In addition to the questions listed above, below are other important questions if you are considering enrolling in a debt management plan.
Is a debt management plan my only option?
Will you provide me with budget advice on a regular basis regardless of whether or not I enroll in a debt management plan?
If an organization offers only debt management plans, find another credit counseling organization that also helps you prepare a budget and teaches you how to manage your money.
How does your debt management plan work?
How will I know if all my creditors will receive payments within the agreed deadlines and within the correct billing cycle?
If you have concluded that a debt management plan is appropriate for you, sign up for one that is designed so that all your creditors receive payments before due dates and within the correct billing cycle.
How is the amount of my payment determined? What happens if it is more than I can face?
Do not enroll in a debt management plan if you cannot afford the monthly payments.
How often can I get reports on the status of my accounts?
Can I access my accounts online or by phone? Make sure that the organization with which you decided to make a deal is willing to provide detailed account statements on a regular basis. Can they make my creditors lower or eliminate interest and financial charges or exempt me from paying late fees?
If the answer is yes, contact your creditors to verify it and ask them how long you must remain in the plan before the benefits are activated.
What are the debts that will be excluded from my debt management plan?
This is an important point since you will have to pay those debts on your own.
Do I have to make any payment to my creditors before they accept the proposed payment plan?
Some creditors require that you pay the credit counselor before accepting it in the debt management plan. If a credit counselor tells you this, before sending the money to the credit counseling agency, call your creditors to verify this information.
How will my credit affect enrolling in a debt management plan?
Be careful with organizations that tell you that they can remove negative information from your credit report. From the legal point of view, this is impossible. Negative information that is correctly recorded can remain in your credit history for up to seven years.
Can you get my creditors to reclassify the age of late payment of my bills – that is, update my accounts? If so, how many payments will I have to make before my creditors update my accounts?
Even if your overdue accounts are updated, negative information about your past due or overdue payments will remain recorded on your credit report.
How to make a Debt Management Plan Work
- The steps outlined below will help you get benefits from a debt management plan and avoid sinking further into your debts.
- Continue paying your bills until your creditors approve your plan. If you stop making your payments before your creditors have accepted you into the plan, you will have to face late payment charges, penalties and negative references reported in your credit history.
- Before sending a payment to the credit counseling organization with which you made the plan, contact your creditors and confirm that they have accepted the proposed plan.
- Make sure that the payment program established by the advisory organization is designed in such a way that your debts are paid monthly before the due date. Paying on time will help you avoid late fees and other penalties. Call each of your creditors the first day of each month to make sure the agency paid them on time.
- Review the monthly statements of your creditors to make sure they have received your payments.
- If your debt management plan depends on your creditors’ consent to have interest and financial charges lowered or eliminated, or to waive payment of late fees, make sure that these concessions are reflected in your account summaries.