Debt management involves various components and includes debt consolidation, negotiation with creditors, formulating repayment plans, etc. These services should be used when people are in an overwhelming amount of debt as it helps to put people in a better financial situation.
People buried in debts often opt for a credit counseling service that can be a lifesaver for some, but it can be unnecessary and even detrimental for few people. This makes it essential to choose the right debt management services which can guide you along each step and offer a solution to unburden you from high levels of unsecured debts.
However, there are certain mistakes to avoid when looking for a service that will help avoid financial trouble.
Choosing a Non-Profit Credit Counseling Agency
Many non-profit counseling agencies are making money though they may distribute their earnings differently than a profit corporation. A non-profit organization does not mean that its services are free or affordable, or even legitimate.
Debt management plans come with monthly fees even when you sign up a plan through a non-profit agency. Some may even ask their clients to make voluntary contributions that can cause you sore financial issues. Therefore, hiring a non-profit does not guarantee legitimacy when choosing a debt management service.
Considering an Agency That Offers No Transparency
An ethical credit counseling agency will be transparent about the services it provides and the fees they charge. If an agency demands payment before service starts or does not provide a contract, consider it a red flag. Avoid any organization that requires an application fee, membership fee, etc. Check the track record of the agency for any scams before deciding on a particular agency for creating your debt management plan.
Not Examining Overall Debts
Before starting your search for a certified counselor, making a list of your current debts and reviewing your credit report is important. A debt management plan considers only unsecured debts, and you have to estimate the amount you need to pay for other debts such as mortgages, auto loans, student loans, etc. The initial consultation with the counselor will require you to share this information so that they may be able to access the situation.
Also, you will be asked to close all credit card accounts with the possible exception of an emergency credit card. This means you will need to manage the other debts on your own as you will be unable to obtain credit.
Not Exploring All The Options
There are many options available under debt management services. Not knowing your options, you can end up paying too much. It is vital to take the time to research all of the providers, which will help you save on paying lesser fees, monthly repayment rates, and interests. Going for the heavily advertised name or the first name you come across is not a good strategy. Chances are there that rates are affordable, but the plan does not suit your financial situation.
Signing up a Debt Management Plan Without Reviewing Your Financial Situation
Debt management plans are three to five-year programs and are not suitable for everyone. A person must be fully committed to this lengthy process of getting out of debt. Most credit counseling agencies recommend enrolling in a debt management plan without even going through your financial records. Sometimes, a debt consolidation plan or debt settlement plan might make more sense for your financial situation. If your circumstances are truly dire, even bankruptcy can be a possible solution.
A good credit counseling agency should spend a significant amount of time analyzing your financial situation before suggesting a debt management plan as the only option. A credit counseling agency will also help you create a budget and teach money management skills.
Not Choosing A Certified Credit Counseling Agency
When looking for debt management services, most clients often make the mistake of not considering whether the company is certified or not. Credit counseling is regulated by the Financial Industry Regulatory Agency. Reputable agencies have counselors that are certified by the National Foundation for Credit Counseling (NFCC). A certified agency will act in the best interest of the client. Check the website of the agency to know if the company is trustworthy.
A good credit counseling agency will have the experience to negotiate lower debt payments and work for your interest. This long journey of the debt management plan will prove worthy as it will relieve you from the stress of debt while helping you strengthen your credit profile. Partner with the right agency and get the peace of mind you deserve.