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By J. H. Marman
Associate Attorney,
Oak View Law Group

Debt Management: Acquire a suitable monthly payment plan

A debt management plan or program (DMP) is a typical debt relief program where something more than simple budgeting is done to resolve your debts. Usually, the services of a debt management company include initial financial counseling and negotiation with your creditors to help you get lower interest rates on your bills. This, in a way, reduces your monthly payments and makes it lot more easier to repay your bills.

Table of contents

• Which debts are eligible for a debt management plan?
• When should you approach a management company?
• What are the benefits of debt management programs?
• What questions should you ask while choosing a company?
• Does debt management harm your credit rating?
• How a DMP affects your credit score?

Which debts are eligible for a debt management plan?

Unsecured debts such as credit card bills, medical bills, student loans, payday loans, tax debt, department store cards, personal loans, and unsecured line of credit can be managed through a debt management plan.

When should you approach a management company?

Ask yourself the following questions to see if you really need debt management help or assistance from a legal debt management company.

1. Do you have multiple high interest debts?
2. Are you having trouble in managing your monthly bills?
3. Have you already opted for a self debt repayment but failed?
4. Do you want to get respite from the harassing collection calls?
5. Are you thinking of filing for bankruptcy?

If any of the answer to the above questions is yes, then you should get debt management assistance immediately.

What are the benefits of debt management programs?

Whether you get enrolled in a credit card debt management program, or simply in any other debt management plan, you receive many benefits. Some of the prime benefits have been stated below:

1. Your unsecured debt payments will get lowered.
2. Interest and other penalties will be reduced or eliminated.
3. You'll be paying a single monthly payment rather than many.
4. Your credit score will improve over time.
5. You'll get out of debt faster as your interest rates will be reduced.
6. You'll be avoiding a disastrous step like filing bankruptcy by getting into a DMP.
7. You'll put an end to all your financial stress and hardships as you'll work with professionals.

What questions should you ask while choosing a company?

You always want to go for the best debt management program in the hope of getting out of debt soon. But how to choose a good company that offers professional debt management services. What if the company you were working with shuts down? Ask the following questions to the representative of the company before you choose any:

1. What services do they offer?

Check out if the debt management company provides you an initial free counseling session and help you develop a personalized plan to solve your money problems. Avoid them if they just push a debt management plan upon you.

2. Are they licensed to offer their services in your state?

In many states, licensing is required to offer services like debt management, credit counseling etc. Don't work with such an organization that is not doing business as per the state laws.

3. Do they offer free information?

Avoid such organizations that ask for money just to let you know the nature of their services.

4. Will you have a writing agreement?

Never commit to participate in a debt management program over telephone. Get all the promises in writing and read them thoroughly before signing them.

5. Are the other clients satisfied with the services?

Check out with your state Attorney General, Better Business Bureau (BBB) and local consumer protection agency to see if there are any complaints registered against the company. If there are any, ask the representative of the company about that.

6. What are the fees? Is there any upfront fees?

Before getting enrolled, ask about the price quote in writing. Moreover, check if the company demands upfront fees. If they demand any, look elsewhere for help.

7. Do they keep personal information of the clients confidential?

If you're working with a debt management company, you have to provide them with your most sensitive financial information. It should be the responsibility of the company to safeguard the information and prevent misuse.

Does debt management harm your credit rating?

Consumers usually believe that if they get enrolled in a debt management program, their credit would be destroyed. However, this is not the truth. In fact, improvement in credit score is one of the benefits that you can have from a debt management program. According to the FICO website, programs like debt settlement or bankruptcy can harm your credit rating, but a debt management will never do.

Debt management can be an effective way to pay off your debts affordably. But before enrolling into a debt management program, see if you really need it. Before making any course of action, take a detailed look at your individual situation and talk to a Financial Coach.