It’s far more fun to manage our assets, but by the same token, we must give attention to the debt side of the equation. When our income refuses to increase or stretch any further, it becomes necessary to restructure our debt payments. When you are unable to pay off your credit cards on a monthly basis, and the balances are building up, this is the time to seek help. Certain credit counseling organizations, also called debt management companies, are able to use their influence to consolidate several unsecured loans or credit cards into a single monthly payment that is lower than the payments you pay individually. This lower payment is usually the result of lowering the interest rate and forgiving late payment fees.
A debt management program can be a lifesaver to the individual who has accumulated a lot of unsecured debt. Some of these programs offer counseling services and credit management classes. Reporting the completion of these classes can help your credit score. This method is preferable to other methods of trying to get out of debt. For instance, you can call up a credit card company and negotiate a settlement – but once that is done it may leave a black mark on your credit which will take some time, usually years, to wipe off. Secondly, you can declare bankruptcy, but the newer bankruptcy rules make it difficult to wipe out the debt completely. The bankruptcy law now requires that a test be done to see if you can repay the loan or not. This, debt management programs are the best solution if you simply can no longer make your monthly premiums.
What happens when you sign up for a debt management program? You send in your list of outstanding unsecured (debt not secured by collateral) debts, and the debt consolidation service contacts each debt holder to negotiate a repayment schedule. All the debts are put on the same period of time. Rates can vary, but are generally much lower than what you were paying before. You send a payment each month to the consolidation service, and it sends payments to each creditor. Thus, instead of making several individual payments, you only send one payment. Eventually, your debt gets paid off.
The Federal Trade Commission recommends that you check the credentials of the debt management service you are using and warns that some services could be fraudulent.[1] You should always check each month to see that your payments are actually being sent to the creditors. You can also call the creditors individually to make sure they have agreed to the proposed debt repayment plan.
Using a debt management program is not the same as bankruptcy and will not have nearly as devastating an effect on your credit score as defaulting on your payments or paying late each month. Once you have completed the program, you can quickly build your credit score to a higher level. Be sure and make your payments to this program ON TIME. If you don’t pay on time, you may lose the benefits of the program – your lower interest rates and fee waivers and may not be able to sign up for another program!
[1] http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre38.shtm
