America Debt Consolidation

Debt Management Programs

If you’re knee-deep in debt, or just can’t seem to catch up on your bills, there are a variety of debt management programs available to you. Contrary to popular belief, a debt management plan does not only involve credit counseling.

You can apply for a consumer debt consolidation program, take out a debt consolidation loan, or consolidate existing loans by utilizing your home equity. Other choices include utilizing a credit card to consolidate your debt, hiring a debt negotiator, or reaping the benefits of meeting with a qualified credit counselor who can help you identify your ideal course of action.

Regardless of your choice, it’s important that you establish and maintain some communication with your creditors, if possible, before you miss a payment. That way you can establish a realistic payment plan. If you’re already behind in you payments, and dread dealing directly with creditors, take heart: a credit counselor can do the talking for you, after carefully examining your financial standing. You should only sign up for a particular debt management plan after obtaining a certified counselor’s advise on the best custom plan for you.

When choosing a financial counseling service, make sure you do your homework. Check with the better Business Bureau and local consumer protection agency to find out if any complaints have been lodged against the agency. You may also want to ask your state Attorney General whether the agency is required to hold a state license. In addition to looking into an organization’s background and reputation, you should ask the agency what service they’ll provide to you. Do they offer counseling, repayment plans, and budgeting recommendations? What are there fees? Make sure they put it all in writing and send you all additional literature before you move forward and hire the agency.

Most debt management programs will require you to make regular, on-time, monthly deposits with the credit-counseling agency over a period of 48 months or greater. The agency then applies your deposit to the payment of your unsecured debt —whether it’s a credit card debt, medical debt, student loan debt or other unsecured debt—in accordance with the payment schedule they established with your creditors, subject to your approval. A credit counselor may also require that you refrain from using any additional credit while you are in the process of making payments on your plan.

Debt negotiation programs are a lot different from credit counseling services and the debt management programs they offer. Debt negotiation alone poses a risk, and can negatively affect your credit standing well into the future. Because of the risks involved in debt negotiation, several states even regulate which services a professional debt negotiator can legally provide. Your state’s Attorney General can tell you what services are legal in your area.

In certain cases, debt negotiation can be risky because creditors are not obliged to negotiation of a consumer’s debt amount. They must only present data to credit reporters, like the fact that you have not managed to meet your monthly payments. Failure to meet your payments (which would continue to be paid directly to the credit) not only puts a blot on your credit report, but creditor may also sue you for the amount you owe. If you are unable to pay after losing a lawsuit, creditors are then entitled to garnish your paycheck or even put a lien on your house!

The advantages of using a debt negotiator are that a negotiator can convince a creditor to lower your interest rates and waive certain fees and even re-age your account, so that, ultimately, you will be in debt for a reduced period of time and your credit report will remain unmarred. Re-aging your account means reporting your payment as current.

Creditors are willing to accommodate in these situations because they would prefer that you pay them it by bit rather than declaring bankruptcy. If the creditor had to call in a collection agency to manage repayment of your debt, the creditor might lose almost half of the money recovered to the collection agency’s fees.

Additionally, since negotiators and repayment agencies have ideally established a solid relationship with creditors, creditors have a sense of the types of repayment plans the agency has established with previous clients. If you negotiate on your own, without the assistance of a negotiator or repayment counselor, you will lack the same pull. The results could be disastrous!

Of the types of debt management programs that a credit counselor will help you establish, the most common type is the one-pay plan, where your credit card debt is consolidated into one payment per month at a single low interest rate. The credit counselor will work with you to figure out how much you can afford to pay each month, taking into consideration the cost of your necessities, emergencies, and even occasional entertainment. You’ll make out your payments to the credit counseling service (instead of directly to the creditor) and the counseling service will pay the creditor. A one-pay plan poses fewer risks than taking out a secured loan, which could connect your unsecured debt to the potential loss of your home or business. And even if you qualify for an unsecured loan, you’d just go from owing a creditor to owing a bank.