Debt management companies can be non-profit organizations that assist consumers by negotiating account terms with their creditors; or for-profit businesses that provide and implement similar, often more-aggressive techniques for their clients. Most types of unsecured debts can be included in a debt management or settlement program such as credit card bills, payday loans, medical bills and other unsecured loans. You may choose to seek the services of a debt management or consolidation program if you are unable to effectively manage your monthly obligations and have been unsuccessful in making payment arrangements with your creditors.
Debt Consolidation as an Alternative to Bankruptcy
Consumers benefit from debt management and consolidation programs because several accounts are combined into one, manageable payment and creditors are provided a solution to outstanding, unresolved and overdue debt. Debt management counselors and negotiators are often successful in lowering interest rates and reducing or eliminating late fees and over-the-limit fees. Usually the overall balance is also reduced. Often, debt consolidation or settlement is the last option before bankruptcy.
Qualifications for Debt Consolidation and Settlement
To qualify for a debt relief program, you do not necessarily have to have a steady income or take out another loan. When you enter into a consolidation program, you will be making one monthly payment into a Special Purpose Account that the debt settlement company uses to negotiate a better settlement with your creditors. If you default on the payments you will be ineligible for the programs offered. The debt management organization may choose at that time to cancel your program and but cannot take money from your account without your permission. This means that your creditors will not be receiving any more payments managed through the debt management company, and you are responsible for the remaining debt on your account.
Finding a Debt Management Company
Several debt management companies exist in America. There are several non-profit organizations as well as many for-profit organizations.
Always review the company’s profile with various independent reviewers and organizations like the (BBB) Better Business Bureau and the (IAPDA) International Association of Professional Debt Arbitrators.
It would also be beneficial to research the company on the Internet and read customer testimonials.
Debt Management Process
Once you find a debt management company, you will have a personal interview with a financial counselor and most likely on the telephone. The counselor will confidentially request your personal information, including monthly income. Then, you will discuss your monthly debts and obligations. This includes all bills, including mortgages, automobile loans as well as utility expenses. It will be helpful to the counselor to know the interest rates, monthly payment amount and balance on all of your accounts. You will then work together to determine a plan which includes a monthly budget and an affordable monthly payment.
Once you agree to a plan and a budget, the counselor will submit debt proposals to your creditors with the eventual goal of negotiating the balance and terms of your account.
If your creditor denies the proposal, the counselor will continue to negotiate with your creditor until they reach mutual terms. Once a creditor has accepted a debt resolution proposals, the counselor resolves the debt. Determining an affordable monthly payment is important because the counselor can extend the terms of your debt management program to fit your monthly budget. Usually, debt management programs last 1-3 years. You will pay into a Special Purpose FDIC-insured Account until all of your debts have been paid.
How Do My Creditors Receive My Payments?
Each month you will pay one payment into a Special Purpose FDIC-insured Account set-up by the debt management company that covers payment on all of your accounts that are managed by the debt management program. Once the debt management company receives your permission, a payment is disbursed to your creditors.
What If I Default Under Debt Management?
If you fail to make your payment to the debt management company, you risk losing your debt management plan. The debt management company can close your account and leave you responsible for any remaining debt to your creditors. Paying the into the account on time is important because your creditors need to receive timely payments on your account in order for the debt settlement company to maintain legitimacy with your creditors. If payments default on your account, then the creditor may begin contacting you or pursuing legal methods to get payment on your account and you will no longer have the debt management company on your side.