A debt management company can help you reduce or eliminate your credit card debt through a repayment plan. The companies can also negotiate with creditors to reduce or waive fees and interest rates. They can be helpful if you’re having trouble staying current with your debt payments, which can lead to late fees and credit score damage. However, the companies can also charge high fees and may not have your best interests in mind. Look for accreditation and credentials, and read reviews and complaints to find a reliable debt management company
There are two broad categories of debt management companies: for-profit and nonprofit. For-profit companies focus on profits and may have steep fees, while nonprofits operate with the mission of helping individuals with their finances.
Debt management plans are usually limited to unsecured debts like credit cards, personal loans and some medical bills. They typically take three to five years to repay and often involve a combination of lowering monthly debt payments, reducing interest rates and waiving fees. Debt management plans can be offered through a company or through an individual credit counseling agency, which will review your financial situation and help you develop a budget.
If you choose to use a debt management company, it’s important to be honest with the counselors about your financial situation. They will need to know all the debts you owe and your income in order to create a realistic budget that fits within your financial constraints. They will also need to close some of your credit accounts, which can result in a temporary drop in your credit score. However, making on-time payments on the plan can improve your credit score over time.
In addition to reducing your monthly debt payments, you can benefit from the other advantages of a debt management plan:
The phone stops ringing: Debt collectors will no longer contact you once you enter a debt management program. This can save you time and money in the long run. You can even avoid legal action if you stay current on your debt management plan.
You can also learn to live within your means by paying down your debt and saving for emergencies and retirement. The lower monthly credit card payments you’ll make over the course of the plan can help you keep up with your mortgage or rent, utilities and other debts while still allowing you to put money aside in savings.
A reputable debt management company will have the best interest of its clients in mind and will offer a fair and honest service. Avoid companies that charge high fees, give unrealistic promises or engage in other unethical behavior. Look for an accreditation from a professional organization and make sure the company is registered with relevant industry associations. If a company is reluctant to answer your questions or gives evasive answers, that’s another red flag.
A debt management company can be an excellent option for many individuals, but it’s essential to weigh the pros and cons carefully before deciding. If you’re considering using one, be sure to choose a trustworthy and accredited debt management company that offers a free or low-cost credit evaluation and consultation.