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Is A Debt Management Plan Right For You?
Are you up to your eyeballs in credit card debt? Can't see an end to the harassing phone calls generated by credit card companies reminding you of your late payment?
You have several options.
You can declare bankruptcy (bad idea for only $10,000 worth of credit
card debt), get a debt consolidation loan, pick up a second job, or enroll
in a debt management program.
A debt management plan allows you to work with a credit counseling company
who in essence "consolidates" all of your credit card bills
into one low monthly payment. You send them a cashier's check or money
order each month.
They in turn distribute the appropriate funds owed to your creditors on
your behalf.
They work with the creditors to get your interest rates lower and possibly
waive any late and over the limit fees you accumulated over the last several
months.
A debt management plan does not erase your debts or eliminate them in
anyway. It is money that you spent that must now be repaid.
A debt management plan gives you a reasonable and practical way to pay
back what you owe based upon how much income you take home and your basic
living expenses.
The credit card companies may report to the three national credit bureaus
that you are on a repayment plan. This is because the terms and conditions
of your original contract with the credit card company have been changed.
However, if you have already been late on your payments, maxed out your
credit cards or have done anything else that could have already damaged
your credit, then the effect of enrolling in a debt management plan is
probably negligible at best.
The debt management company will ask you to close out all of your credit
cards. The purpose of this is so you do not rack up any new debt while
paying off your old debt.
You do sign an agreement with the company facilitating your debt management
plan. Remember that this arrangement is voluntary on everyone's part,
so it is advisable to cooperate with what you are told to do.
There are a few things you must keep in mind if you choose to go this
route.
If you call a credit card counseling service, make sure they do not ask
you to pay any kind of "pre-consultation" fee up front or have
you sign any kind of agreement or contract on the initial contact.
If you are able to pay off all of your debts earlier than the planned
pay off date, there should be no pre-payment penalty of any kind.
Check through your local credit union to see if they are partners with
a non-profit consumer credit counseling company. If your credit union
does have a partnership, chances are you can work with the credit counseling
company for free.
If not, be careful of any companies claiming outrageous things in their
advertising, especially on the Internet. Check them out. Do they have
any negative reports from the Better Business Bureau?
Look up their names with your Secretary of State. Are they real and legitimate
companies? Are they licensed to actually do business in your state. Most
states have tough guidelines when it comes to credit counseling.
It is important you work with a consumer credit counseling service that
actually has your interests placed ahead of theirs. You don't want some
counselor disguised as a salesman pushing a multi-thousand dollar debt
cure all program on you.
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