The Debt Management Expert

Enrolling in a debt management plan
Signing up for a debt management plan may give you more breathing room in your monthly budget, but will it hurt your credit? Not as much as you may think. Using a debt management plan to pay off debt won’t hurt your credit score, but it may make it difficult to qualify for new credit.

Debt management plan: Protecting your credit score
When you enroll in a debt management program, you write a monthly check to a credit-counseling agency and the agency pays your creditors. A debt management plan usually lasts three or four years. A notation stating that you are paying an account through a credit-counseling agency appears on your credit report and remains until the account is paid in full. Paying an account through a credit counseling agency will not hurt your credit score.

Debt management plan: Qualifying for new credit
Participating in a debt management plan could make it difficult for you to qualify for additional credit, and some debt management plans prohibit consumers from applying for new credit anyway.

Some creditors may see that a person is in a debt management plan and decide that they have all the debt they can handle. Other creditors might view participation in a debt management plan as a positive step, a sign that a consumer has taken responsibility for and is serious about paying off debt.

The more a creditor bases a lending decision on a consumer’s credit score, the less a consumer’s participation in a debt-management plan is likely to matter. A typical creditor uses the FICO score. They don’t look at notations on the account. Paying off a big chunk of debt on your own or with the help of a debt management plan will give your credit score a boost.

Debt management plan: Late payments hurt your credit score
What will hurt your credit score? Not debt management plans. Instead, being 30 or 60 days late with any payments can adversely impact your credit rating. Those negative marks hurt your credit score and can mar your credit report for up to seven years.

Debt management plan: Choose wisely
It is very important to choose a debt management plan carefully. If the agency administering the program misses or is late with a payment, it is your credit record that gets impacted. Enrollment and monthly fees for debt management plans vary widely. Some companies may charge several hundred dollars for their services, while others charge monthly fees of $20 or less.

With a debt management plan, a consumer usually gets reduced interest rates, lower monthly payments, no more late fees and fewer calls and letters from creditors. Debt-counseling agencies get their operating money by receiving a percentage of each client’s payments back from creditors.

If you are current on your bills, you may want to try negotiating new payment amounts and lower interest rates with creditors on your own. You never know what kind of deal you may land. And you may be able to make real headway on your debt by simply tightening your belt for a few months and freeing up more cash for debt payments.

Debt management plan: Monitor your debt counselor
If your situation is more serious or you just feel plain overwhelmed, you may want to talk to a debt counselor. If you decide to sign on for a debt management plan, be sure to monitor your credit bills carefully. Is the agency paying your bills on time as promised? You need to be vigilant and look at your statements regularly.

If you discover a problem with bills paid through a debt consolidation company or credit counselor, report the company to a local consumer protection agency or state attorney general‘s office. You can also file a complaint with the Better Business Bureau. For more ideas on how to monitor these companies, see some of the suggestions by the FTC on Debt Management Plans.

Related articles

• Debt Management Plans vs Bankruptcy (Bankrate.com)

• Weighing the Options With Credit Card Debt (nytimes.com)

• Get a Handle on Your Debt (alwaysbcmom.com)

• Don’t Carry Debt To Improve Your Credit Score (bargaineering.com)

Examples of Debt Management Companies

• Money Management International
• National Foundation for Credit Counseling
• Balance Financial

OVERVIEW
Debt management or debt settlement companies can often save you time and trouble when it comes to debt consolidation. A benefit of using a debt management company is the ease of the transition from having many, smaller debts to having one larger one. That being said you need to closely review any company you plan to work with to ensure that they are doing what you agree to.

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The process of debt consolidation can be tricky and intimidating and often not something for you to try, if you are not financially savvy. Debt management or debt settlement companies can often save you time and trouble when it comes to debt consolidation. A benefit of using a debt management company is the ease of the transition from having many, smaller debts to having one larger one. A debt settlement company will take over paying all your creditors. You have to make one simple payment every month.

The idea of debt consolidation is simple. The many smaller debts you carry are covered by one large loan. These are typically unsecured loans such as credit cards, personal loans, store credit cards, and bank overdrafts. The benefits of debt consolidation are that that you can negotiate one interest rate for this loan and you can negotiate the amount of the payment. Often, during the negotiation process, you can often reduce the amount of the debt.

Pros of Debt Settlement
• Avoid bankruptcy – By using a debt management company to consolidate your debt, you will can reduce your debt burden and pay off your bills more comfortably. You can protect assets, such as your car and your home, using debt settlement.
• Make One Easy Payment – You will make one payment to consolidate your debt each month to the debt management company. They will disperse the funds to the creditors. This one payment on your consolidated debt simplifies your bill paying enormously.
• Avoid Harassment – Debt collectors are notorious for their ruthless tactics. A debt management company eliminates a debt collector’s ability to hound you for payment on your consolidated debt.
• Avoid Lawsuit – Debt settlement companies can help you get a hold of your consolidated debts and get them settled in reasonable manner. This can help eliminate the possibility of a lawsuit against you.

Cons
• Debt consolidation negatively affects your credit score.
• During debt settlement, some of your accounts will get charged off. Debt consolidation can negatively impact your credit score. Debt consolidation can be repaired through time and careful use of credit in the future.
• Fees
• Some unscrupulous debt management companies will charge exorbitant fees for their services. Often, you will be asked to pay a percentage of your monthly payment to the debt settlement company in fees.

Points to remember:
• Choose a reputable non-profit debt management agency for debt consolidation. Make sure you toughly investigate the company you decide to use. You need to make sure you choose your debt management company wisely.
• Learn the fee structure for debt consolidation up front.
• Before you agree to a debt management plan, understand the impact this will have on your credit rating.
• Stop using your credit while you’re trying to repair your debt. Create a budget and stick to it.

Related Articles:

• How to Choose a Debt Management Company (Super Pages)
• Debt Help that isn’t (Bankrate)
• Debt Management Company Watch Outs (About.com)
• Your 3 worst debt consolidation moves (MSN)
• The Perils of Debt Management Companies (Find Law)

Examples of Debt Management Companies:

• Debt Consolidation Care
• Credit Counselors
• CareOne