Before Signing Up A Debt Management Program With A Credit & Debt Management Company

Do your monthly minimum credit card payments that exceed 15% to 20% of your take-home pay make you feel that you just can’t face another month of credit card bills? If so, you may want to consider enrolling in a debt management program.

A debt management program, also known as debt management plan, is individually designed to combine your multiple credit card payments into one low monthly payment and then the monthly payment received is disbursed to your creditors on your behalf by the credit counseling and debt management agency.

Besides getting a low monthly payment, a DMP can get you a reduction in interest rates, an elimination of finance charges, late payment and over-limit fees, relief from collection agents, and one-stop bill paying.

Before signing up with any credit counseling agency, beware of e-mail and TV ads for credit and debt management companies that make tons of promises.

Not that there aren’t reputable debt management firms. There are. But credit counseling agencies tend to fall into one of three categories: the good, the bad and the ugly. Knowing the difference can save you a lot of heartache and money.

Look for reputable non-profit credit counseling agencies known as consumer credit counseling services (CCCS) affiliated with the National Foundation for Credit Counseling (NFCC).

You must avoid debt management companies that:

• Have an “unsatisfactory record” with the local BBB. Serious, unresolved complaints, such as late payments to creditors and false advertising are some contributors to the “unsatisfactory record” at the BBB.
• Don’t spend 30 minutes conferring with you. If a credit counselor promises to enroll you in a debt management plan in less than 30 minutes, well, get outta Dodge. The less time spent with you, the less a credit counselor works in your best interest.
• Don’t let you review your contract before signing it. A good debt management agency will let you review a contract at home before signing it. It’s recommended that you compare three or four contracts from different companies to see who’ll give you the best deal.
• Automatically enroll you in a debt repayment plan.
• Expect upfront fee equal to one month’s debt payment.
• Require “voluntary” contributions. Beware of of credit counseling agencies that say they have no upfront fees but tuck a sentence into your contract stating, “I voluntarily agree to contribute one month’s payment…”
• Pay your creditors late, despite your making on-time payments

It’s important to choose a certified credit counselor that takes time to: review your assets, liabilities and spending habits; explain the benefits of a debt management program; work out an affordable amount that you need to pay each month to clear your debt; and help you come out with a plan that can clear your debt within five years.

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