How Do Debt Management Companies Work?

I have old credit card debt and am trying to figure out if I should hire a debt settlement company or debt management company to work on my behalf. I have done a lot of reading and they both seem very similar, and I can't really figure out what the difference is between the two. Can someone tell me how debt management and credit counseling agencies work?

ErickJ- debt management and credit counseling refer to the same process. Debt management companies attempt to lower the interest rates on each of the debtor's credit card accounts. In the meantime, the debtor makes one monthly payment to the debt management company who in turn disperses monthly payments to all of the person's creditors. These debt management programs attempt to eliminate the person's debt within a 4-5 year time frame on average.

As a result, debt management is one form of debt consolidation, as the debtor is able to make one simple monthly payment instead of sending out payments to all of the creditors every month. Typically, the debt management company will charge a monthly fee for this service.

I do not know if all creditors work with debt management companies however. Does anyone know if this is the case? Are there any creditors who do not work with debt management companies? Also, do third party debt collectors work with debt management companies? It sounds like ErickJ has old debts that may be in collections, so this would be important for him to know.

From what I understand not all creditors work with debt management companies. It is most likely because of the fact that by working with a debt management company and agreeing to lower the debtor's interest rates, the creditor in a way is voluntarily losing money.

While this may sound rediculous to some considering the tactics that creditors use on consumers, for example hiking interest rates up to 30% if the person is even a day late, it is all about the money for them! The longer a consumer is making minimum payments on a balance that has a fairly high interest rate, the higher the profit in the end for the creditor.

However, I am not positive as to which creditors currently do not work with debt management companies. If anybody does feel free to add to my response.

I heard that Citibank is no longer working with debt management companies. I am not 100% but I have read elsewhere that they can be a problem.

So what exactly is it that these debt management companies do that I cannot do myself? I mean, can't I just call my creditors and get the interest rates lowered myself?

Honestly other than than being able to make one payment per month as opposed to many, I don't really see why I should pay someone to do this if I can do it on my own. If anyone had a legitimate reason as to why I couldn't contact my creditors on my own please let me know because I am really hurting and need a solution fast.

Ice Man- yes, you can certainly contact your creditors to see if they would be willing to lower your rates for you. Typically however, creditors will refuse to do so if they are working with the actual debtor. From my experience I know that some creditors will agree to lower the rates, but they will only do so for a short period of time- maybe 6 months or so. They refer to this option often as a "hardship program."

While this may not make much sense, ultimately the creditors want to hold off from doing this for as long as possible since lowering the interest means less profit!

 

 

Third-party debt collection agencies do not work with debt management companies. They claim that it is the debtor's responsibility to take care of the debt, even if they have transferred the account to a debt management company. I was once enrolled on a DMP myself and the collection agency kept on calling me. They were also attempting to offer me a "hardship program" that was better than what my CCCS offered me--11.5% interest instead of 15% that the CCCS offered

Doesn't AmEx refuse to participate in a debt management program as well?

Yes, American Express refuses to work with credit counseling agencies, but they will agree to work with a number of debt settlement companies.

How much do they charge monthly for their services?