Get Started for a Free Consultation!

Debt Destroy

Credit Counseling and Debt Management

With so many companies offering services to help consumers get out of debt it is easy to become overwhelmed by your options. An important step in eliminating debt is first finding the method of elimination that best suits your needs. Before making any hasty decisions you must first examine how each company and process works to avoid choosing the wrong strategy. Each company advertises the end result- getting out of debt, but it is your job to find out how this will be accomplished. Here we will cover credit counseling and debt management plans to help you decide if this is the right method for your circumstances.

What Is Credit Counseling and Debt Management?
Credit counseling is actually more of an educational process than a financial method. When you find yourself deep in debt and in need of help, credit counseling combined with debt management plans can help you not only get out of debt but learn how you got there as well as how to stay out of debt in the future. Credit counseling agencies will help you first by evaluating your situation and contacting your creditors to reduce your interest rates and waive penalties and fees. By doing this you might pay a lower monthly payment to the credit counseling agency who will in turn pay your creditors. The repayment plan is referred to as a debt management plan and can help you get out of debt with minimal impact on your credit. Credit counselors can also help you find the real source of your debt such as living beyond your means or lack of organization which will help you correct the error and avoid incurring debt in the future.

What Are The Risks?
The benefits may be obvious in that you have a strategy to eliminate your debt and prevent future debt however this process is not without risk. Consider the following before enrolling in a debt management plan with a credit counseling agency.

  • Debt Reduction- Unlike other more aggressive forms of debt elimination, this process will not reduce the amount of debt you have to pay. You will still be responsible for the entire balance as only the interest rates are lowered. This is important if you are in a financial position that limits your ability to make regular or structured payments.
  • Additional fees- You may see penalties and fees waived by the credit card company but you will replace them in part with the fees you pay to the agency to handle your debt. Creditors will negotiate a lower interest rate with a consumer if they are unable to make the payments, therefore you could do this on your own without paying the administrative fees to an outside company.
  • Backed by credit card companies- Credit counseling agencies are able to get lowered rates because they are funded by credit card companies. This could be a considered a conflict of interest. How can you know if the advice you receive is in your best interest or that of the credit card company and counseling agency. Never agree to a payment plan that is more than you can afford as you will undoubtedly not be able to maintain the payment leaving you in the same or worse position as when you started.

Credit counseling and debt management plans can help consumers who lack the discipline or organization to keep their finances in order. On the other hand most consumers could see the same results by dealing with their creditors directly and improving their financial management skills on their own.


Be the first to comment on this article.