If you are deep in debt and you are wondering if debt management can help you get out of it, you need to understand the whole concept and process before you really decide. There is no shortage of debt relief programs but you need to choose depending on your financial capabilities. Otherwise, you could end up with more debt than when you started. Given your limited resources, the usual expenses that you have to meet and your credit obligations, making a mistake with debt relief is really not an option.
What is debt management?
Debt management, like all the other programs have specific qualifications that has to be met. You will understand all of them as you dig deeper into the whole process.
This solution actually begins with credit counseling. It involves a credit counselor who will look at your debt situation and advise you on the best course of action that will help you solve it. They will give you tips on how you can manage your debt and finances so that you can make better progress in paying down your debts.
If you have a steady income to support your payments and you only need to organize your multiple credit obligations you will be asked if you wish to avail of debt management. You will still work with the same counselor but this time, they will take a more active part in your debt payments.
The debt counselor will:
Help you identify the debts that you can enroll in the program (mostly credit cards, medical and personal unsecured loans).
Guide you in creating a budget plan to determine how much you can afford to pay your debts on a monthly basis.
Create a debt management plan (DMP) with you that will contain your proposed lower payment plan.
Present the (DMP) to your creditors and negotiate for its approval. During this negotiation, they will also try to ask them to lower your interest rate and have your other fees and penalties waived.
Manage your debt payments once the DMP is approved by letting you pay a single amount every month.
Distribute the funds you send to the various creditors in the plan.
Educate you on proper financial management to help you stay out of debt.
Benefits of using a debt counselor to manage your debts
You may be wondering why you need to go through debt management if you can handle things on your own. It’s true that it does not take a rocket scientist to manage one’s debt but here’s the reality: when you find yourself in debt, that signifies that you had been making mistakes in your finances. You want to know how you can correct those mistakes and oftentimes, a professional credit counselor can put the whole situation in a whole new light. That can probably help you identify the mistakes that will help you conquer your debt problems.
Here are a few benefits that a professional debt counselor can give you:
Expertise in the industry.
Years of experience.
Existing work relationship with creditors.
Professionalism during negotiations.
Of course, you get these benefits if you hire the right company to help you out. There are scammers out there waiting to prey on desperate people in debt and you have to steer clear of them. The best place to start looking for reliable and trustworthy credit counseling agencies/debt management companies is by looking at reputable organizations. For starters, look at the members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). You can visit the websites of the members and see which companies seem promising. Also, you can check out if there are any filed complaints against them in the Better Business Bureau or BBB. Conduct a thorough due diligence to know if they are legitimate and sincere in helping you get out of your debt woes.
Comparing debt consolidation loans and debt management
Debt management, is one of the specific programs in debt consolidation. This is why it is usually pitted against debt consolidation loan – another method of consolidating debts. But to help you understand which of the two will benefit you best, here are some similarities and differences between them.
Similarities
Provide lower monthly payments.
Longer payment term.
Takes care of credit score.
Does not provide debt reduction.
Requires a steady and stable income.
Differences
Debt management involves a debt professional, debt consolidation loan does not.
A lower interest rate is guaranteed in debt consolidation loan while in debt management, it is a possibility but not always a certainty.
Debt consolidation loan requires a good credit score or a collateral to ensure an interest rate.
The tendency to incur debt is more possible with debt consolidation loan.
Proper financial education is part of the debt management service.
There is a service fee in debt management (maximum of $50 a month).
Debt management chooses the debts it will accept while in debt consolidation loan, you can use it for almost all kinds of debt.
Consider these carefully before you finalize your decision to use debt management as your debt solution.
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