The average American has $38,000 in personal debt. For many people, debt can feel overwhelming and impossible to overcome.
If you’re one of those people, you don’t have to accept your status quo. You may benefit from seeking out a debt management program for assistance in improving your financial health. A debt management program will help you strategize and pay down your debt in the most effective and disciplined way possible.
How a Debt Management Program Works
A debt management program helps you take back control of your finances. You will have a clear and realistic plan that will address all of your debts in the most efficient way possible.
After finding a debt management program offered by a credit counseling company, you’ll book an initial consultation. At this first appointment, you’ll sit down with a certified credit counselor. They will look through your entire financial situation, including your expenses and debts. They will also discuss what got you into the situation, your current pressures, and any other information you may think is relevant. With all this information, the counselor will create a customized debt payment plan for you.
Your credit counseling company can’t negotiate to lower your balance with any creditors. Sometimes, they can help you negotiate a lower interest rate on debts. This is known as a ‘concession rate.’ A monthly fee will be paid to the debt management company and your fee will be based on your new concession rate.
Benefits of a Debt Management Program
There are several benefits to a debt management program, including:
- You may have a professional negotiate lower interest rates on your debt, saving you money.
- Your debt will likely be consolidated into one manageable monthly payment. This single payment will reduce your stress and reduce the risk of an account going to collections.
- You will have somewhere to turn anytime you have questions or new problems arise.
- Many people find that they perform better on a debt repayment journey when they have a third party holding them accountable for their actions.
It should be noted that there are a few potential drawbacks to working with a debt management company. When lenders see this partnership, they view you as a high-risk client. Therefore, you may find it difficult to open new lines of credit or increase existing ones. Additionally, your credit score might decrease slightly.
Am I the Right Candidate for a Debt Management Program
You are ready for a debt management program if you:
- Can afford all of your current monthly minimum payments
- Can afford to pay a bit more than your current monthly minimum payments
- Are up-to-date on at least one credit card
Choosing the Right Debt Management Company
Your financial situation is serious and shouldn’t be taken lightly. When you partner with a debt management company, you’re relying on them to improve your situation. Unfortunately, there are many credit counseling companies out there, and not all of them have your best interests in mind.
When reviewing your options in selecting a debt management company, make sure to consider the following factors:
Years in Operation
For most people, a debt payment journey takes several years. You want to work with a reputable company that has completed this process with many customers and will be there for you at the end of your journey. Generally speaking, the longer the company has been in business, the more qualified they are.
Industry Memberships & BBB Rating
Credit counseling companies are held accountable for their standards of practice in various ways, such as industry memberships and their BBB rating. Ensure your debt management program has a membership with the NFCC or the FCAA. Additionally, look them up on the Better Business Bureau (BBB) to view previous customer reviews.
Your debt management company will charge you a fee, as they need to make money to continue operations. Usually, there is a setup fee and a monthly fee. Many states have restrictions on the maximum amount these fees can be.
Ask your debt management company to provide you with a comprehensive list of the fees you’ll be charged. This way, you won’t be surprised and can make an informed decision.