What is Debt Management?
There are many companies out there offering "debt management,” also known as Bill Consolidation, Bill Management, debt consolidation Loans, Debt Management Plans, Credit Counseling, Credit Management or Debt Elimination. These companies make many claims that seem almost too good to be true but that are reality for the right candidate:
- Consolidate your debts into one low monthly payment.
- Reduce your debt by 40%-60%, in some cases even more.
- Eliminate interest and late fees.
- Stop harassing and threatening phone calls.
- Get out of debt in a fraction of the time.
- Rebuild poor credit
We are dedicated to helping you sift through bogus claims some of these companies make to find the real benefits that they can provide. Sometimes a debt management company can provide great peace of mind. Hopefully this article will assist you in making a better decision in choosing a company to help you solve your debt problem.
There are two major categories of debt assistance: Debt Consolidation and Debt Negotiation. Each of these can be broken down into several other sub-categories. This section talks about debt management.
Simply put, a debt management service has preset arrangements with almost all of the major creditors, mostly credit card companies, and some medical & collection companies. These agreements allow debt management companies to grant its customers access to much lower interest rates on unsecured debt that the customer has piled up. These interest rates are pre-negotiated for people that use the debt management services and have those same companies as creditors. When you call a debt management company they reference this pre-negotiated creditor interest rate sheet and then give you a new payment based on the lower interest rates they have negotiated with that particular creditor. Typically this payment is lower than the rate most credit card companies offer the public and more often than not will save you money on your monthly credit card bills and simplify your payments if you have multiple creditors.
One caveat of the debt management plan is that you must cancel any and all cards you include in the program so that they can be paid off. You may wish to exclude a card for emergencies, depending upon the policies of the debt management company you choose to work with.
One benefit of the debt management Program comes into play if you are behind on payments and are getting harassed by your creditors. If you can make the new, lower monthly payment, the debt management company will stop the creditors from calling you and keep them satisfied in the interim.
The payments are usually setup to last four to eight years but statistics have shown that there is a significant fallout on debt management programs due to unrest, changing situations, and poor customer service. So, to get the greatest benefit from a debt management program, make sure you are committed to utilizing this innovative solution for the long term.
Expect to pay two types of commissions to a debt management company. The first type is roughly your first payment you'd make toward the program that does not go directly toward your creditors but gets the wheels of the debt management company turning. The second type is a monthly administration fee. For example: Say you owed $10,000 in credit card debt and your existing payment you were making was $350. With the lower interest payments that can be secured from creditors by debt management companies, the debt management company got you to $250 per month, a $100 "savings". You then would make a payment in the form of a monthly draft out of your checking account for the $250. Typically this doesn't cover a payment to your creditors so you'll need to cough up another $250 that month to pay your creditor bills.
The administrative fee pays the people at the debt management company that deal with your creditors and keeps the program running. It is compensation to the debt management company for getting your interest rates and monthly payments reduced. Monthly “admin” fees of different debt management firms range all over the board. Some charge a flat fee anywhere from $10-$40, others charge a per creditor fee of $5. Either way, you're paying about $30 per month that doesn't go toward your debt.
You might be wondering which types of people will benefit financially from a debt management program. A debt management Program significantly benefits those who have very high interest rates (above 18%), have more credit card bills then they can keep up with, or would just like the simplicity of one payment to one company for all of their unsecured debt.
If you would like a free quote from a company similar to the ones mentioned above, click here or call 1-800-646-2993.