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3 Ways That Debt Management Can Make You Rich

man carrying a credit cardDebt management can refer to two different things. One is the debt relief program that can help you achieve debt freedom. The other involves the habits that will help you manage your credit so you can keep yourself from being ruined by the credit that you have taken on.

Debt had always been given a bad image. It is viewed to be a source of misery for a lot of families. Being in debt is the epitome of a financial crisis. When you have too much credit obligations, you will end up with a very restricted budget. Since you have to pay off your debts, you will be left with a smaller amount for your basic necessities. In most cases, you are compelled to sacrifice a lot about your life in order to meet all the required debt contributions on a monthly basis.

Based on the credit card data from the NerdWallet.com site, the average household credit card debt is at $15,270. This is when you divide the total debt of $856.9 billion with indebted household alone. But we all know that most of us have more than credit cards to take care of. We also have mortgage loans and student debts to take care of. Not to mention the medical bills that usually drive people to declare themselves as bankrupt.

Without a doubt, debt management is something that we need. Whether it is the debt relief program or the skills to manage your debts, it remains to be a useful solution to your money woes. But did you know that it can also make you rich? Although we have just explained how too much credit can rob from you, it can also help you build your wealth.

How does credit management help you get debt freedom

Of course, before debt can propel you towards wealth, you have to learn how to get rid of debt first. It is the whole debt experience that will make you rich – at least, if you do it correctly.

Step one is to take control of your debts first. While there are many options to get out of debt, we will be focusing on debt management. All of the available debt solutions are effective but you need to be qualified for it. Not only that, they all have different processes and effects in your finances that you may want to consider how you want your financial situation to end up when you finally achieve debt freedom.

Debt management is a great alternative to debt consolidation loans. Instead of relying on a loan to pay off your debts, you will restructure your debt payment plan so you can afford the monthly payments without sacrificing too much of your basic necessities.

Here are the important facts of this debt solution that will get you out of your credit problems.

  • It involves a credit counselor who has the expertise to analyze your debt and financial situation. They will scrutinize how much you owe and what you are capable of paying on a monthly basis.

  • For maximum amount of $50 per month, they can help you create a debt management plan and assist you in implementing it.

  • A debt management plan contains your proposed monthly payment that is usually lower than what you used to contribute. This is done, not through debt reduction, but by stretching your remaining balance over a much longer payment period. This results in a lower payment scheme.

  • The credit counselor will also try to negotiate for a lower interest rate on their balance. This can help lower the monthly payments even further. Of course, this will never be guaranteed by the counselor because the final word will come from the creditor. But still, you should know that they will make their best effort.

  • The monthly payment in this debt solution will allow you to simplify your plan. Although the credit accounts will not be combined, your payments will be. Part of the service of the credit counselor is to help distribute the monthly payment that you will make. You do not have to put too much effort in tracking your due dates and making sure that your money arrives in time in your credit account.

If you follow your debt management plan, you will find yourself out of debt soon enough. But with all of these processes, how can this debt solution make you wealthy?

3 things you gain from this debt solution that will make you wealthy

The thing that will help you become rich is the attitude that you will gain when you implement the effective debt management tips that will be imparted by the credit counselor.

Here are the three important learnings that you will have through this debt relief program and how each of them will help you increase your personal net worth.

Financial Literacy

The first learning is financial literacy. People get into a financial crisis because they did not know how to manage their money wisely. They got themselves into debt because they failed to understand what it will cost them. According to the survey published by the National Foundation for Credit Counseling through the NFCC.org, 40% of Americans think that their financial knowledge only merits them a C, D or F (2013). This proves that financial literacy is one of the ways that we can avoid putting ourselves through a debt crisis. You cannot find financial success when you lack the knowledge to manage your money. This is something that debt management can help you with.

All debt management programs will begin with credit counseling. The counselor will educate you and give you the materials that you need to help you understand how money should be spent. You will be taught how to budget, save and how to make smart decisions about your finances. Your knowledge is what will propel you to explore opportunities that will grow your money.

Discipline with Money

Another learning that you will get from debt management is discipline with money. It is very important that you learn how to control your finances because that is where the discipline will be honed. The most important manifestation of that discipline will be shown in how you spend your money. If you are reckless in your spending and you cannot follow a plan, then you will have no hope of controlling where your money should go to. You will be bound by compulsive buying habits that will eventually lead you to be in debt.

Through the watchful eye of the credit counselor and the rules in your debt management plan, you will be trained on how to implement your financial plan. This discipline will also be forced into you because when you fail to follow the plan, your creditors will terminate it and you will go back to paying the bigger amount that you used to make.

A plan, whether it is a business plan or budget plan can only be effective if you learn how to implement it. By having the discipline, you can get the fruit of the goal that you are trying to reach through your financial plans.

No Shortcut for the Debt Solution

The last learning is knowing that there is no shortcut. In debt management, there is no reduction of what you owe. You will end up paying for everything that you have borrowed – up to the last cent. You are only restructuring your payment plan to make it easier.

This is an important lesson that we all have to learn. When we have it easy, we sometimes tend to take things for granted – especially the lessons that we should have learned from our mistakes. If you fail to realize the mistake and take in the lesson, you can get into another financial crisis. We have mentioned before that being in debt will keep you from achieving financial wealth. So the patience that you will get from this debt solution will help you develop the perseverance that will make you rich.

What Is The Best Alternative To Debt Consolidation Loan?

man carrying debtUsing debt consolidation loan as a debt solution is the first option that consumers usually think of when they are faced with mounting credit obligations. In truth, this is an effective option but only if you have the right qualifications and attitude towards it.

Some financial experts doubt the effectiveness of using one debt to pay for another. It is not really viewed as a solution because you are merely shifting your dues so your payments will not be as difficult as before. Instead of dealing with multiple creditors, you apply for a loan that is big enough to pay for all your other debts. That way, you will be left with only one lender and debt to pay for month on month.

However, there are a couple of things that you have to consider before you choose this as your debt solution. First of all, you must possess either a good credit score or a collateral to avail of a low interest loan. This will ensure that your monthly payments will be smaller than your current. But if you do not have both, you may want to consider other debt relief programs that can give you better results based on the qualifications that you have.

Instead of consolidating with loans, use Debt Management

If you think that your qualifications are ill-suited for debt consolidation loan, you may want to consider debt management instead. The latter is another type of consolidating debts but this time, no loan is required to make it possible. Instead of a loan helping you to combine what you owe, a credit counselor will be used instead. Here are important points that you need to know about debt management.

  • The program begins with credit counseling wherein the credit counselor will analyze your finances and debts to see how you can best solve it.

  • Once the data is analyzed, the credit counselor will discuss with you the different options that you have in terms of debt relief.

  • If you qualify for debt management, the counselor will discuss the process and the fees that you will go through.

  • When you agree to use debt management, you will create a debt management plan or DMP that will contain your suggested low monthly payment scheme. The low payment will be possible because the counselor will lengthen your payment period.

  • The counselor will give the DMP to creditors to approval and will negotiate on your behalf for the lowering of your interest rate. If they agree, that will mean more of the monthly payments will be used to pay off the principal debt.

  • Once approved, you will send the total monthly payment to the counselor who will take care of disbursing the payments to your different creditors.

The benefit of this is you don’t need to have a good credit score or a collateral. However, the lower interest is not really guaranteed – but the counselor will put their best effort to provide this.

Of course, the lynchpin here is to find a trustworthy and reliable credit counseling agency that will help you out. To find them, you may want to start your search by going to the membership list of the National Foundation for Credit Counseling or the NFCC. Reputable organizations such as this will help link you to legitimate counseling agencies that can assist you in getting out of your credit problems.

Another important reminder is you should have a steady income. There is no debt reduction here and if you cannot afford the payment, debt management will not work for you.

When making a loan to pay for debt is not enough

In case you need a debt reduction because your income is not enough, the best alternative for debt consolidation loan is debt settlement. There are several benefits to a debt settlement plan. When you decide to use this as a debt relief option, here are the things that you should know about it.

  • Debt settlement works best for unsecured debt like credit card debt, medical bills and other personal loans.

  • Debt settlement will require you to default on your payments intentionally to help convince the creditor that you are in a financial crisis.

  • The default on monthly payments will lower your credit score but will allow you to save up for a settlement fund.

  • The settlement fund will be used to negotiate with creditors. You will ask them for a debt reduction by offering an amount that is lower than what you owe. You will tell them that you can only afford to pay this amount and if they cannot accept, you will be forced to petition for bankruptcy.

  • During the negotiation, you will start with an amount that is lower than what you have on your settlement fund. This will give you room to negotiate.

  • Once you and the creditor agree on a settlement amount, make sure you hold a document that states the forgiveness of the debt balance once you have paid the agreed amount.

This program is quite stressful but you have the option to hire a debt professional to help you out. Just like with a credit counseling agency, you may want to start your search by looking at trustworthy debt settlement companies through a reputable organization. One of them is the AFCC or the American Fair Credit Council. Look at the members to see who among the companies on the list you can work with.

If you want to know more about how you can do your own debt settlement, here is a video that we have created for you. Watch it to know how you can be successful in settling your own debts.

5 Pros And 5 Cons Of Debt Management

blackboard with pros and cons columnsDebt management is one of the programs that can be associated with debt consolidation. The whole process involves the restructuring of the consumer’s debt payment plan so that it becomes easier to follow. Sometimes, people just need to reorganize their payments so they can pay off their debt more efficiently.

Although debt consolidation loan is another way of consolidating debt, most financial experts will suggest debt management. Although both are effective, debt management offers a more concrete debt solution compared to debt consolidation loan.

5 Benefits of using a credit counselor in debt relief

One of the strongest points of debt management is the fact that you have a credit counselor helping with your debt. In fact, this program begins with credit counseling. In most cases, you will go through the process of counseling before you can really decide if you will allow the counselor to manage your debts for you.

If you do decide to use debt management, you need to pay a service fee of no more than $50 a month. The credit counseling part is usually free but the debt management is not. You need to be careful about the credit counseling agency/debt management company that you will hire to help you out. There are various scammers who can trick you out of your money so be cautious of your selection. It helps to begin your search by looking at the members or reputable organizations like the National Foundation for Credit Counseling or the NFCC. You should also look at the Better Business Bureau or BBB website to find out if the company you are interested in has received any complaints from their past clients.

When you have found the right company, here are the benefits that you will get should you choose to use this debt relief option.

Debt relief expertise and negotiation skills

The whole lynchpin of debt management is call the DMP. Short for debt management plan, this is what you will use to restructure your debt payments. The credit counselor will use their expertise to help you create this plan. Not only that, they will take charge of sending this to your creditors and negotiate so that they will permit you to follow this plan. It usually contains a lower monthly contributions and your creditors will have to agree with it so you will not suffer any penalties. In some cases, the credit counselor will also negotiate for a lower interest rate.

Working relationship with creditors

All the negotiations will be tricky but credit counselors usually have a standing working relationship with your creditors already. That will make it easier for you to get the approval for the DMP that you both created. Not only that, the counselor will know how to construct it in such a way that the creditors can accept it without any of the payments breaking your budget.

Does not ruin credit score

Since there is no debt reduction in this program, you don’t have to worry about your debt solution damaging your credit score. As long as you stick to the plan, you will not only keep your score, you can steadily improve it as well.

Freezes credit account to keep from incurring debt

When you enroll your credit card debt in a debt management program, the creditor will freeze that account so that you will not add any more debt under that account. This can keep you from incurring more debt and it will only last until you have completed the debt management plan.

Expert advice about personal finance

Probably the best advantage of using debt management as your debt solution is the fact that the credit counselor can teach you the basic personal finance skills that will keep you from debt. These include budgeting, saving, smart spending and the other habits needed for you to live within your means.

5 reasons why debt management is not the right debt solution

While a debt management plan can help with your credit problems, the fact remains that it is not always for everybody. You need to possess the right qualifications and sometimes, the right temperament for it. Here are 5 reasons why this debt solution may not be the best option for you.

You have the wrong debt type.

Debt management can only work on unsecured loans, credit card debt, medical bills and other personal loans. It cannot help with secured loans or student loans. If you do not have the right debt type, you will not be accepted into the program.

You need debt reduction.

Even if you have the right debts, if you know that you need a debt reduction, you may be unable to afford debt management. This program can lower your monthly payment because your current balance is stretched over a longer payment period. But you will still end up paying for everything.

You do not have a stable income to support your payments.

Since there is no debt reduction, this program naturally requires you to have a steady and stable income. Otherwise, you will be unable to support the monthly contributions. And since this is over a longer period, the stability of your payments must be ensured.

The lower interest rate is not guaranteed.

While the lower monthly contribution is guaranteed, the lower interest is not. You have to keep this in mind so that you are not disappointed in case the creditor will not agree to lower it despite the efforts of your counselor.

You want a quick way to get out of debt.

This debt relief program takes around 5 years to complete. Since you are making small payments, you should expect that the progress will be quite slow. If you want a faster way to get out of debt, you need to make bigger monthly contributions or you may have to select another debt relief program.

If you want to learn more about how debt management can help you, watch this video about how you can use debt consolidation.

Could Credit Counseling Help Get Your Spending Under Control?

woman making financial decisionsThere are people who get into serious trouble over their debts through no fault of their own. They might have had a serious illness or been in a terrible automobile accident. Many people lost their jobs as a result of the Great Recession and are now either unemployed or underemployed. However, the brutal fact is that most people who get into trouble is because of poor spending habits.

Credit cards can get you if you don’t watch out

Credit cards are probably the biggest culprits when it comes to problems with debt. They make it just too easy to spend money you don’t have. You say you’d love to have that 50-inch flat screen TV but you don’t have $700 in cash? Just put it on a credit card and in the immortal words of Scarlett O’Hara, “I’ll worry about that tomorrow.”

Could consumer credit counseling help?

If you’re not familiar with consumer credit counseling this is where you go to a company or agency that specializes in helping people with debt problems. There are consumer credit counseling agencies in most cities and numerous credit counseling companies available via the Internet. The best of them are nonprofits and charge very little for their services. Your best bet would probably be to use a local agency where you could work with your counselor face-to-face.

What to expect

Regardless of whether you go to a local consumer credit counseling agency or find one online, you will be assigned a credit counselor who will first analyze all of your finances, including your spending and your income. He or she will help you develop a budget and a debt management plan. You will also likely be offered financial advice and printed materials to take home that could help you become a better money manager. Finally, if you wish, your credit counselor will contact all of your lenders and attempt to negotiate reductions in your interest rates. He or she will also present your debt management plan to them. If they all agree to your plan, the credit counseling agency will assume responsibility for paying them and you will be required only to send it a check each month until you complete your plan. This typically takes about five years.

The pitfalls of credit counseling

Consumer credit counseling can be a great way to get your debts under control and ultimately paid off. However, there are some pitfalls you need to be aware of. For one thing, you will be required to surrender all of your credit cards and will be very strongly encouraged to not take on any new revolving debt until you complete your plan. Just as important, you will need to stay on your budget for those five years, which could be very difficult. These are reasons why many people are never able to complete their debt management plans.

Here’s a short video that explains more about consumer credit counseling and how it can be used to reduce debt.

Your spending habits

You will definitely need to change your spending habits in order to stay on your budget. The reason you got into debt in the first place was probably because of your spending habits and you will need to change them. This can be difficult as it means you may have to totally change your way of thinking about credit – especially credit cards. In fact, you may need to completely rethink your attitudes about money. You would need to learn to live on cash and totally renounce credit.

Other options

If consumer credit counseling doesn’t appeal to you for some reason, there are alternative ways to get your debt under control or even paid off – although all of them require the same thing, which is to change your spending habits. The most popular of these options are.

  • A home equity loan
  • A homeowner’s equity line of credit
  • Refinance your mortgage
  • An unsecured personal loan
  • A balance transfer
  • A peer-to-peer loan
  • Snowballing your credit card debt
  • A loan for people with bad credit
  • Cash out your savings
  • DIY debt negotiation

Tips for DIY debt negotiationgirl working on a laptop

One of the best ways to get debt paid off is through DIY debt negotiation. If you have the intestinal fortitude to try this, it means contacting each one of your lenders and offering to settle your debt on the spot but for much less than you actually owe. For this to work, you would need to be at least six months behind in your payments to each of your lenders. The reason for this is because very few companies are willing to talk debt settlement unless you are that far behind. Of course, you’ll need to have the cash on hand to pay for those settlements. In fact, that’s one of your bargaining points – if they settle with you you’ll immediately send them the required amount of cash either by wire transfer or in the form of a cashier’s check. Beyond this, here are some tips for DIY debt settlement.

  • State your option. If you can successfully convince your creditors that it’s either settle or you will file for bankruptcy, you should be able to negotiate some very favorable settlements.
  • Check your state’s statute of limitations. Every state has a certain number of years that your creditor or a collection agency has to try to collect a debt from you. If the statute of limitations has expired, the lender cannot legally try to recover by suing you. This is a case where instead of proposing a settlement you could just tell the collection agency to get lost.
  • State your conditions. A priority and precondition for settling any debt should be getting your credit cleared. If you are sending in a debt settlement agreement offer or a counter offer, make sure your lender agrees to remove the negative item from your credit file. In fact, this needs to be a clearly stated contingent for settlement. And the lender must return a signed copy of your debt settlement offer – acknowledging agreement and acceptance.
  • Get everything in writing with no exceptions. Your creditor may agree to your settlement offer orally but that’s not enough. You need to make sure – in writing – that your creditor will abide by its word and remove negative credit entries from your credit report after a settlement. Keep everything in writing from your first debt settlement offer right up to the point where your creditor sends you a receipt acknowledging your payment.

Why most people hire a debt settlement company

While it is possible to do DIY debt settlement, most people turn to a debt settlement company to handle this for them. There are two reasons for this. First, most people do not have enough cash on hand to pay for the settlements they would negotiate and second, most people understand they are not very good negotiators. Professional debt settlement companies can almost always get better settlements then can people themselves. Plus, this becomes a form of debt consolidation because ultimately people who use a debt settlement company end up sending just one check a month to the settlement company until they complete their plan. This typically takes anywhere from 2 to 4 years.

Common Questions About Credit Counseling

credit counseling signAmong all the other options of debt relief, credit counseling is something that can really benefit you. Debt is caused by a lot of mistakes that you made in the past and credit counseling will really help you get a clear picture of what you did wrong. More than just creating a payment plan that will get you out of debt, you also need to deal with what got you in debt in the first place.

This is where credit counseling can help. This program will provide you with the answers as that will not only get you out of debt, it will also help you understand what you have to do to keep yourself from another debt situation. That is a complete debt relief assistance and it pays to know what you can about it.

What is involved in credit counseling

So what exactly is involved in credit counseling? This is probably the first question that you will ask yourself.

This debt relief option involves a professional credit counseling agency. You will be assigned a credit counselor who will work with you on your debt. They will provide their expertise and experience to help you identify the extent of your debt problem and how you can possibly afford to pay it off.

But what can they do about your debt?

During the credit counseling session, there will be no direct action towards solving your debts. It will usually be about analysis, planning and education. Let us define each part.

Analysis

During the analysis part, you will have to provide the following to your credit counselor.

  • List of all your debts. You can take a look at your credit report for this or the credit counselor can get a copy for you.

  • Details of your monthly expenses. Make sure that you provide the complete list and the most near-accurate estimate that you can calculate.

  • Net income. Provide any regular income that you receive every month. Include your salary, benefits, investments and other sources of income that will help you pay off both your debts and your monthly expenses.

All of these information will help you credit counselor analyze the depth of your problem so they can advise you on how you can beat your debts.

Planning

After analyzing your financial position, the credit counselor can help map out your debt relief plan. This is just a general overview of how you can get out of debt. The credit counselor will point out what options suit your debt and finances best. You can discuss your financial goals with the counselor so they will understand how your after debt situation should be. For instance, if you want to get out of debt fast, they will open up debt settlement or bankruptcy as an option – at least if your finances really cannot accommodate any other solution. If you are concerned about your credit score, they will steer you away from these programs and suggest either debt management or debt consolidation loans. You can make your selection with the guidance of the counselor.

Education

The best part of credit counseling is the education part. You will benefit from the personal finance tips like budgeting, saving and smart spending. All of these will be provided by your credit counselor so you can stay out of debt after you have implemented the debt relief plan that you will use. This is just as important because you can be assured of maintaining the debt free life that you will work hard to achieve.

At this point, you may be asking, is credit counseling enough? Some people may have the resources to pay for their debts without any problems. They just needed to have a bit of direction through the counsel of a professional. In most cases, it is not. It is best partnered with another debt relief option – a program that will give you a more direct plan to pay down your debts.

Other questions asked about credit counseling

Apart from these information, here are other questions that may be bothering you about credit counseling. Let’s try to answer them here.

  • How is debt management involved? Debt management is the part of credit counseling that pays off your debt. It involves the creation and implementation of a debt management plan that contains your proposed low single monthly payment to your creditors. The counselor will help you negotiate this with your creditors so they will accept this new plan.

  • What debts can be helped by credit counseling? The counselor can give you advice about any type of debt but if you wish to use debt management, you can only use it for credit card debt, merchant cards and other unsecured personal loans.

  • Are there fees involved? Usually, the credit counseling part is free. These agencies are supported by credit card companies. They want to provide consumers with the resources to help them pay back their debts. There are for profit companies that you can avail too. When you go for debt management, there is usually a fee of no more than $50 a month to help you manage your debt payments. If you want to look for a free credit counseling agency, you may want to start with the Consumer Credit Counseling Service or CCCS.

  • How will it affect your credit score? In most cases, this will not affect your credit score. Sometime, creditors will mark your account with “CC” which basically means you are slow in paying your debts. But overall, creditors usually leave your report unmarked with hints about your credit counseling efforts.

  • Am I allowed to use my credit cards? Any credit card account that you will enroll cannot be used. This is a good thing, actually, as it will help keep your debt amount low.

  • Will the collection calls stop? Usually the calls will stop. In the first few payments, you may still receive them but as you are consistent in your contributions, it will stop.

What You Need To Know About Debt Management

What You Need To Know About Debt ManagementIf you are deep in debt and you are wondering if debt management can help you get out of it, you need to understand the whole concept and process before you really decide. There is no shortage of debt relief programs but you need to choose depending on your financial capabilities. Otherwise, you could end up with more debt than when you started. Given your limited resources, the usual expenses that you have to meet and your credit obligations, making a mistake with debt relief is really not an option.

What is debt management?

Debt management, like all the other programs have specific qualifications that has to be met. You will understand all of them as you dig deeper into the whole process.

This solution actually begins with credit counseling. It involves a credit counselor who will look at your debt situation and advise you on the best course of action that will help you solve it. They will give you tips on how you can manage your debt and finances so that you can make better progress in paying down your debts.

If you have a steady income to support your payments and you only need to organize your multiple credit obligations you will be asked if you wish to avail of debt management. You will still work with the same counselor but this time, they will take a more active part in your debt payments.

The debt counselor will:

  • Help you identify the debts that you can enroll in the program (mostly credit cards, medical and personal unsecured loans).

  • Guide you in creating a budget plan to determine how much you can afford to pay your debts on a monthly basis.

  • Create a debt management plan (DMP) with you that will contain your proposed lower payment plan.

  • Present the (DMP) to your creditors and negotiate for its approval. During this negotiation, they will also try to ask them to lower your interest rate and have your other fees and penalties waived.

  • Manage your debt payments once the DMP is approved by letting you pay a single amount every month.

  • Distribute the funds you send to the various creditors in the plan.

  • Educate you on proper financial management to help you stay out of debt.

Benefits of using a debt counselor to manage your debts

You may be wondering why you need to go through debt management if you can handle things on your own. It’s true that it does not take a rocket scientist to manage one’s debt but here’s the reality: when you find yourself in debt, that signifies that you had been making mistakes in your finances. You want to know how you can correct those mistakes and oftentimes, a professional credit counselor can put the whole situation in a whole new light. That can probably help you identify the mistakes that will help you conquer your debt problems.

Here are a few benefits that a professional debt counselor can give you:

  • Expertise in the industry.

  • Years of experience.

  • Existing work relationship with creditors.

  • Professionalism during negotiations.

Of course, you get these benefits if you hire the right company to help you out. There are scammers out there waiting to prey on desperate people in debt and you have to steer clear of them. The best place to start looking for reliable and trustworthy credit counseling agencies/debt management companies is by looking at reputable organizations. For starters, look at the members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). You can visit the websites of the members and see which companies seem promising. Also, you can check out if there are any filed complaints against them in the Better Business Bureau or BBB. Conduct a thorough due diligence to know if they are legitimate and sincere in helping you get out of your debt woes.

Comparing debt consolidation loans and debt management

Debt management, is one of the specific programs in debt consolidation. This is why it is usually pitted against debt consolidation loan – another method of consolidating debts. But to help you understand which of the two will benefit you best, here are some similarities and differences between them.

Similarities

  • Provide lower monthly payments.

  • Longer payment term.

  • Takes care of credit score.

  • Does not provide debt reduction.

  • Requires a steady and stable income.

Differences

  • Debt management involves a debt professional, debt consolidation loan does not.

  • A lower interest rate is guaranteed in debt consolidation loan while in debt management, it is a possibility but not always a certainty.

  • Debt consolidation loan requires a good credit score or a collateral to ensure an interest rate.

  • The tendency to incur debt is more possible with debt consolidation loan.

  • Proper financial education is part of the debt management service.

  • There is a service fee in debt management (maximum of $50 a month).

  • Debt management chooses the debts it will accept while in debt consolidation loan, you can use it for almost all kinds of debt.

Consider these carefully before you finalize your decision to use debt management as your debt solution.

If You’re Looking For Better Ways To Pay Off Debt

smiling woman holding gold credit cardAre you so deeply in debt you feel as if you had a huge boulder strapped to your back? Being in trouble with debt can cause stress that might even be affecting you physically. You might be experiencing an irregular heart beat, developing an ulcer or suffering from insomnia – all because of that huge boulder of debt.

Can your borrow your way out of debt?

One way to get out-of-debt under control is to borrow money and pay off your debts. This does offer several benefits, not the least of which is that the new loan should have a lower monthly payment than the sum of the payments you’ve been making. The new loan will most likely have a lower interest rate than your existing debts – one of the reasons why your payment will be lower.

The downside of borrowing money to pay off debts

The biggest downside of borrowing money to pay off debts is that, as the old saying goes, you can’t borrow your way out of debt. If you had $20,000 in debts and were able to borrow $20,000 to pay them off, you would still owe $20,000. Plus, you would probably end up paying more in interest charges over the life of the loan because you would be paying on it so much longer. For example, if you were to get an equity loan to pay off the $20,000, it could take you 10, 15 or even more years to pay it off.

Consumer credit counseling

Another popular way to pay off debt is by going to a consumer credit counseling agency for help. There are probably several institutions near you that offer credit counseling. Community colleges, universities and credit unions often offer it. You might be able to find an agency such as the Consumer Credit Counseling Service (in our city), which is a nonprofit and does nothing but consumer credit counseling.

A debt management plan

Consumer credit counseling has several advantages. For one thing, it does not require you to borrow any more money. What will happen instead is that you will have a counselor who will go over all of your finances, help you develop a budget and work with your creditors to get your interest rates reduced. The two of you will work together to develop a debt management plan (DMP) that he or she will present to your creditors for approval. If they do approve your plan, you won’t have to pay them anymore. You will send one check a month to the credit counseling agency and it will distribute the money to your lenders.

Five long years

Consumer credit counseling can certainly be a good way to get debts under control and to eventually become debt free. However, eventually is usually five years, during which time you will need to live on a very strict budget and not take on any new revolving credit. Many people are unable to complete their debt management plans, either because they are unable to stay on a very strict budget or they eventually decide they can handle a debt management plan themselves.

Debt negotiation or debt settlement

A third way to become debt-free is through what’s called debt negotiation or debt settlement. This has become a very popular way for families to handle their debts because it’s the only option that can get debts reduced. For example, a good, ethical debt settlement company such as National Debt Relief is usually able to settle a client’s debts for literally pennies on the dollar. In turn, this usually makes it possible for their clients to become debt-free in 24 to 48 months instead of the 60 months typically required by a debt management plan.

No upfront fees

If you decide to investigate debt settlement, be sure to pick a company that doesn’t charge any upfront fees. In fact, it has been found that almost all companies that charge upfront fees are swindlers. The best of these companies charge nothing until they settle your debts to your satisfaction and present you with a payment plan that you approve.

The Ugly Truth About Credit Counseling

Young couple in financial troubleNo matter how deeply you might be in debt you do have options for managing and eliminating it. Three of the most popular are credit counseling, debt consolidation loans and a chapter 7 bankruptcy. But before you sign up for credit counseling, you should know its unhappy truth.

What is credit counseling?

As you might know, this is where you go to a credit counseling agency and they help you develop a debt management plan (DMP). The best of these are nonprofits and charge little or nothing for their services. In addition to helping you develop a DMP, they will work with your creditors to get your interest rates reduced. If you stay with your DMP, you should be able to get out of debt in about five years.

A sad success rate

Unfortunately, the success rate of debt management plans is about 20% to 26%. In other words, only about one out of every five people who sign up for a DMP actually complete it. In addition, it seems that only people who a have considerable amount of disposable income left over each month are able to get out of debt via a DMP. The National Foundation for Credit Counseling itself reported completion rates of only about 26% with about 20% of people who had signed up for a DMP leaving for self-administration. In other words, they felt they could complete the plan better themselves than through a counseling agency.

Why such a low rate?

There is no single reason why people fail to complete debt management plans. However, it is thought that one of the major reasons is the limited amount of concessions that lenders will offer consumers who choose credit counseling. In other words, if consumers sign up for a DMP and then learn that it can’t significantly lower their debts, they are likely to not complete a 3 to 5-year DMP.

Useful to only some consumers

It is believed that the way DMP’s work today makes them useful for only some consumers. It’s not the debtor but the creditors who call the shots when it comes to concessions. History shows that they will rarely reduce the principal owed as part of a DMP. In fact, consumer credit counseling agencies really have only three important concessions they can offer their customers. They may be able to “re-age” their accounts, get interest rates reduced and get late fees and penalties eliminated or at least reduced.

A DMP requires self-discipline

Another reason why credit counseling has such a low completion rate is because they require a fair amount of self-discipline on the part of people who sign up for a DMP. They will lose their credit cards and be required to not take on any new revolving debt until they complete their plan, which could be five years. Some people simply don’t have enough self-discipline to handle this. They will begin running up more debt, find they can no longer make payments to the credit counseling agency and drop out of the program.

Other options

Both debt consolidation loans and chapter 7 bankruptcies have better completion rates than credit counseling. This is especially true of secured debt consolidation loans. This is likely due to the fact that these loans are often secured by a very important asset such the borrower’s house. A chapter 7 bankruptcy also has a good completion rate because there is no alternative. When you’ve gone through a bankruptcy, you will have discharged most of your unsecured debts and should be able to keep your most important assets, including your house, car, furniture and any tools required in your job.

Debt settlement

Debt settlement has become increasingly popular because unlike credit counseling, it can actually get your unsecured debts reduced. Plus, debt settlement is a way to get debts consolidated because once the settlement company has negotiated settlements with all of your creditors, you will make only one monthly payment. In most cases, debt settlement will help you become debt free in 24 to 48 months – depending on how deeply you are in debt., Honest, ethical debt settlement companies have a much higher success rate than do consumer credit counseling agencies and you can probably now see why.

How To Use A Debt Consolidation Loan To Pay Off Your Creditors

The word debt being erasedYou’ve probably heard the old cheer, “What do we want? We want a touchdown. When do we want it? We want it now!” If you’re seriously in debt, you might well be thinking, “What do I want? I want out of debt. And when do I want it? I want it now”.

Unfortunately, there is no way to get out of debt “now.” You can find ads on the Internet promising to get you out of debt immediately or to repair your credit, but don’t believe them. It just can’t be done.

Debts just won’t go away

Debts are like a leech that attaches itself to you and just won’t go away. Once you’ve run up a lot of debt, there are only two solutions. You can either file for bankruptcy or find some way to pay them off. If you would rather not have a bankruptcy on your record, you could get a debt consolidation loan and pay off all your creditors at once but, spoiler alert – that doesn’t eliminate your debts. It just moves them from one set of creditors to a new one.

Get a loan and pay off your creditors

The way this works is simple. If you owe, say, $20,000 in credit card debts, you go to your bank or credit union, borrow $20,000 and pay off all your cards. Of course, this assumes you could borrow the $20,000, which may be easier said than done. Banks and even credit unions are usually not very anxious to loan more money to people who are already having a problem with debt.

A secured debt consolidation loan

If you owe $10,000 or more, you will probably have to get a secured loan. This is where you have to pledge some asset to “secure” it. For most people the asset will be their houses in the form of a second mortgage or homeowner’s equity line of credit (HELOC). If you don’t have a house you could use as collateral or if you don’t have a sufficient amount of equity in it, another option to consider is consumer credit counseling.

Consumer credit counseling might help

Consumer credit counseling has become a very popular way to handle big debt because it can get all those angry creditors and debt collectors off your back and without having to borrow more money to do it. The way this works is pretty simple. You find a legitimate and reputable consumer credit counseling agency, either online or in your area, and go to it for help. You’ll be assigned a debt counselor who will review all your spending and income and help you create a plan for paying off your debts. He or she will then present your plan to your creditors. If they all approve it, you’ll no longer have to pay them. Instead, you’ll pay the credit counseling agency and it will pay your creditors.

The negatives of credit counseling

The biggest downside of credit counseling is that it will probably take five years for you to complete your plan. Your debt counselor may also help you create a budget so you won’t run up any new revolving debt until you complete your plan. You will probably have to surrender all your credit cards. You will also need to be sure you make all your payments on time because if not, your plan could be canceled and you could end up in even worse shape.

The one way to get debts reduced

Whether you choose a debt consolidation loan or consumer counseling, you’ll still owe whatever you owe. In the words of that old adage, you can’t borrow your way out of debt. The only way to get debts reduced without filing for bankruptcy is through debt settlement. Call us today or fill in the form you’ll find on this page to learn more about debt settlement and what it could do to improve your life.

How To Choose A Credit Counseling Agency

credit counseling signCredit counseling can help you to get out of debt if it has overwhelmed you. Credit counselors will use your financial information to give you options that will enable you to pay off your debt. You should therefore give honest facts about your finances to enable the credit counselor to provide you with the best option. Before you choose a credit counselor, there are certain qualities you need to look for. Here are tips on how to choose a credit counseling agency.

Check With Your Employer

Most of the large corporations offer free credit counseling to their employees. They may also refer you to a credit counselor that they know can help you get out of debt. These counselors usually offer other programs such as budget planning.

Ask Friends And Family
Many people including your loved ones have been in debt or they could still be in debt. If you have a family member that has used credit counseling services, you may inquire if the company helped to solve their debt problems.

Look For A Nonprofit Agency With A Long History

Check that the credit counseling company is a non-profit organization. It will help you to save money because their fees are not high. However, not all non-profit companies are the best, so be careful when making your decision. In most cases, those companies that have been in operation for a longer period of time are good.

Find An Accredited Agency

Check if the company is BBB (Better Business Bureau) accredited. Companies that have shown good performance are BBB accredited. You can also look at reviews posted by customers who used the company’s services.

Ensure That The Agency Is Licensed

Check if the credit-counseling agency is licensed before you enroll in its program. It is not mandatory that an agency should be registered though there are some states that require all credit counseling agencies be registered. A credit-counseling agency may be registered by your state’s Department of Commerce. You can also call different banks or institutions to get referrals for registered agencies. Depending on your financial situation, you may receive credit counseling from recommended agencies. For example, if you want to file for bankruptcy, the Department of Commerce may be able to recommend an agency. If you have problems with your mortgage, you might be required to seek help from an agency that has been accredited by your state’s Department of Housing and Development.

Look For Complaints

List all the agencies whose offices are nearest to you. Do a thorough research to check if there have been complaints filed against the company. Compare the length of time that the agency has been in operation and the number of complaints it has received. It is normal that it has received complaints but what counts is whether those complaints have been resolved. Contact your local Attorney General to check whether there have been complaints made by customers against the company. You can get recommendations from the consumer protection agencies because they keep records and follow up on complaints.

Ask For Information About The Company

A good agency will give you all the information you need to know about them. They should also provide you with a clear picture of their fee structure and policies. The agency should also provide you with other services such as creating a budget and lessons on how to overcome financial obstacles. Enquire about the qualification of their credit counselors as they should be professionals with a good experience.

Don’t Pay Unreasonable Fees

Credit counseling is normally cheap so if you are suspicious of the fees that an agency is charging, then look for another one. It may be a profit making agency and all they want is to benefit from you.

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