Credit counseling is becoming a big business due to more and more consumers drowning in debt. There are hundreds of ads floating around promising debt relief that is pain free and guaranteed. And although these programs can be somewhat tempting to a person who is having a hard time staying above water when it comes to their debt, it can be difficult to work with a company that will deliver what they promised.
If you are thinking about working with a debt management program, here are 6 specific things you should know before you choose to hire a management agency.
1.Non-Profit Doesn’t Mean Much
There are many debt management companies who parade around as a non-profit organization. The goal is to make them look as if they are 100% on your side. In actuality, these type of management companies are all in business to turn a profit. The only difference is that they spread their earnings out differently than a for profit organization. When it comes to debt management companies, understand that they charge for their services. And since you can’t manage your debt in one day, companies tend to charge a monthly fee until the their clients debt is under control.
If you choose to work with a company that handles debt, then you might want to work with a company that is able to negotiate your debt with the collection agencies and creditors. As the management company negotiates your debt, you in turn you make monthly payments towards your debt until it’s paid off.
2.There is a possibility you could do this yourself
Most people don’t understand that they could actually get themselves out of debt without the help of a management company. Debt management companies simply contact your creditors and negotiate repayment plans. They also attempt to get you a lower interest rate and fee. If you are willing to put in the work, you could contact creditors yourself. Most creditors are more than willing to help you cancel out what you owe if you actually want to avoid bankruptcy. Bankruptcy is terrible for both parties, so talking with your creditors may not be easy, but it can definitely be done without a debt management company.
3.Your Credit Score May Not Stay the Same
There has been a lot of reports saying that debt management companies don’t help your credit but can hurt it. Although this isn’t the case all the time, it really just depends on how bad your payment history is. If you have many late payments, and are currently behind on any of your credit payments then hiring a management company can be beneficial.
If you are the person who has tons of debt but you stay up to date with your payments, then your credit score could drop tremendously if you were to hire an debt management company. The reason for this is because your management company is hired to renegotiate your obligations to the creditor. The creditor may change your payment due dates resulting in late payments being reported. Another bad aspect about debt management companies is that many creditors tend to close your accounts during the time you are working with a debt management company in turn taking off any good history you might of had on your credit history.
Ultimately no matter what you credit score does, when you choose to work with a debt management company, you are choosing to work with one for the long haul. If you aren’t able to handle the responsibility of taking on your own debt, then having a company help you do that is more advantageous than not.
4.New Credit Isn’t an Option
As awkward as this may sound, enrolling in a debt consolidation company will keep you from opening up any new lines of credit. Which for obvious reasons probably shouldn’t even be an option anyway. If you do decide to open up a new line of credit you take the risk of of losing the benefits that come along with your management being able to negotiate your debt.
Opening new lines of credit is a great move for anyone looking to build or rebuild their credit. But if you are trying to get out of debt then it isn’t the smartest move to make.
5.It Doesn’t Happen Over Night
Many people go in thinking that debt companies can magically make your credit better over night. This is a false ideology. Once you enroll in a debt management program, it can take 30 days before your creditor even receive your first payment.
Avoiding late payments on your credit report means you will need to make a double payment;which will be a payment directly to your creditor and a payment to your debt consolidation company. Of course since you might be already having a difficult time paying down your debt, you may not be able to handle a double payment. So somewhere along the way you may be forced to take a late mark on your credit report.
Another thing to keep in mind when it comes to hiring a debt management company is that they will not be able to control the collection calls. Those calls will most likely continue until they receive their first payment from the debt company. If you let your creditor know that you are now working hand in hand with a debt management organization then they will more than likely leave you alone.
One of the things that a debt company can do is get your interest rate lowered. Once your management team reaches out to the creditor, they will immediately lower your interest rate by several points. This can be beneficial if you are paying more than 17% in interest. The reduced APRs can save you tons of money.
6.Waiving of Fees
As stated before, your payment may take a while to reach your creditor which could incur fees. Your management company can possibly get your creditor to waive any future fees while they are working out a payment schedule. This can save you more than $40 per creditor per month.
Make sure that you do your research before you decide to hire a debt management program. Although they can be helpful, you could find yourself working with a company that could do more harm than good. Not all debt management companies are created equal.