Debt management is a subset of debt consolidation. Like debt consolidation, a debtor takes several credit card bills and reduces them to one monthly payment at a lower interest rate. For many debtors who have lost a job or suffered a reduced income and are trying to get back on their feet debt management may be the way to go. However, there are some considerations and consequences that a debtor has to consider before going this route,
If you are considering debt management as an option, utilize a non-profit credit counselor. To locate an agency near you, try going to the National Foundation for Consumer Credit at http://www.nfcc.org/FirstStep/locator.cfm. The NFCC member agencies have trained counselors who can do everything from counsel on housing options (reverse mortgages or foreclosures) to assistance with budgeting, credit counseling for bankruptcy purposes or offering debt management plans.
Usually, the set-up and debt management fees are very reasonable and well under $100.00. Why do you think that is? Because the non-profit credit counseling agencies receive their funding, in part, from the credit card companies! Credit card companies will work with these non-profits because the debtors are required to pay back the full amount of their debt, albeit at a lower interest rate.
Some other downsides of using this option:
(1) Debt management plans (DMPs) require that debtors stop using their credit cards completely and they cannot obtain any new credit while in the DMP.
(2) While the debtor is in a DMP, that fact will be reported on the debtor’s credit. When the debtor completes the plan, the reporting will cease.
(3) There is no requirement that a particular creditor agree to a DMP. Many do, but there is no requirement.
(4) If a debtor misses a payment, the debtor may find him or herself back where he/she started and owing as much as before. Even worse, the DMP may have guidelines and not accept the debtor back into the plan.
(5) The payments requested by the credit counseling agency are just too high to make the plan affordable.
(6) Because the credit counseling agencies are funded by the credit card companies, they only work with original creditors. For debts that are seriously delinquent and have moved on to collection agencies, credit counseling will not help.
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