Ever since the National Foundation for Credit Counseling was established in 1951, there have been excellent resources available for consumers who desire to pay off debts and restore credit. Debt management programs (DMP’s) offer relief to those whose monthly payments are overwhelming, confusing, and delinquent, who are willing to make the necessary changes in spending, and who are willing to take the advice of experts and work closely with them.
Learning how debt management programs work will give you great insight into what you can expect, and how to get the most out of the program from the very beginning.
Debt Management Program Principles
1. Reality Check on How Much Debt Management Programs Save Consumers.
More than 300 agencies are in business today. Nearly every one of them as a first step will attempt, through either consolidation, negotiation or settlement, to lower the total monthly amount the consumer must pay, generally less than the sum of the original disparate debts. Savings are sometimes advertised as high as 50%, but in reality 10-20% is an excellent discount.
2. Debt Management Is Typically for Unmanageable Debt.
The point of enrolling in a DMP is to get out of debt and avoid bankruptcy. It may seem obvious, but in this competitive, hustling economy, there are some people who will do anything to get ahead, or even merely for the sake of convenience. Keep in mind though, that a debt management program is for people who are in serious debt, and whose credit score is already in poor shape. For those who are not experiencing unmanageable debt, programs like these are less than ideal—lighter debt situations can often be managed with a little personal discipline and a few phone calls. If you are not in serious debt, do not enroll in such a program. You may not end up better off, and could damage to your credit score.
3. Verify a Debt Management Program’s Plan for Paying Creditors.
Choose a program that will get your payments to your creditors on time. You might be surprised to learn that some debt management plans are actually quite inadequate at this. Before signing on to a program, make sure you discuss your payment schedule with them, and find out how soon after receiving your money that they will disburse your payment. Until recent changes in the law, many programs collected the first three or four months of payments as up-front fees before any creditors were paid at all. The debt management program’s administrator should send you some kind of statement each month, or, better yet, offer an online service where you can track the status of your payment.
4. Reputable Debt Management Companies Often Have Higher Success Rates.
The reduction you get in your terms of repayment is based on a negotiation process between the debt manager and the creditor. There is no guarantee that the creditor will accept any of the terms put forth by the manager. Your best bet is to consolidate your debt with a well-known, reputable agency. These tend to have better relationships with lenders, and considerably greater negotiation powers. Since all credit counseling agencies are monitored by the Department of Justice, check with them before making a decision.
5. Explore Debt Management Program Options.
Nearly all DMP’s are administered by consumer credit counseling agencies. The two terms are somewhat synonymous. However, they are not the same thing. A reputable credit counseling agency will help you explore all other options before deciding that a debt management program is the best option.
You Are Free… but Life Is Not
Most of us in the United States are debtors. Purchasing large ticket, vital items like houses, cars, or college tuition can lead to large scale debt. There are no debtors’ prisons in the USA, however, unbearable debt can leave one with the distinct feeling of imprisonment.
No matter how vulnerable you may feel, keep in mind that you, the consumer, are never in the dark. Most credit counseling agencies and debt management programs are well-intentioned and offer sound advice and quality service. Knowing as much as possible about the industry, the types of services offered, and who is overseeing the process, is an essential key to understanding which debt management program will be the best one for you.
If you want more manageable monthly payments, start by finding out how much you could save with a debt management plan.