Living paycheck to paycheck? Just can't seem cope with mounting bills, being hounded by debt collectors? If this sounds familiar, it may be time to consider the services of a credit counselor. Reputable credit counseling organizations can advise you on managing your money and debts and help you develop a personalized plan to deal with your money problems. An initial session typically lasts an hour, and maybe some follow-up sessions and workshops.
Debt Management Plans: If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). Don’t sign up for one of these plans unless and until a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.
How a DMP works: The counselor will develop a payment schedule with you and your creditors. Your creditors may agree to lower interest rates or waive certain fees to accommodate the plan. You will agree to deposit timely payments to the counselors trust account from there they will pay your unsecured debts, like credit cards, student loans and medical bills etc. Most likely you will be required not to apply for/or use any additional credit will participating in the plan.
Is a DMP Right For You? Here are some other important questions to ask if you're considering enrolling in a DMP.
- How does your DMP work? How will you make sure that all my creditors are paid by the applicable due dates and in the correct billing cycle?
- How is the amount of my payment determined? What if the amount is more than I can afford? Don't sign up for a DMP if you can't afford the monthly payment.
- How often can I get status reports on my accounts? Make sure that the organization you sign up with is willing to provide regular, detailed statements about your account.
- What debts aren't included in the DMP? This is important because you'll have to pay those bills on your own.
- Do I have to make any payments to my creditors before they will accept the proposed payment plan? Some creditors require a payment to the credit counselor before accepting you into a DMP. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency.
Use Caution When Shopping for Debt Relief Services: Avoid any debt relief organization whether it’s credit counseling, debt settlement, or any other service that:
- charges fees before it settles your debts or enters you into a DMP plan
- pressures you to make "voluntary contributions," which is really another name for fees
- guarantees it can remove your unsecured debt from your credit report
- tells you to stop communicating with your creditors, but doesn't explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
- won’t send you free information about the services it provides until you provide personal financial information, like your credit card account numbers, and balances
- tries to enroll you in a debt relief program without reviewing your financial situation with you or teaching you budgeting and money management skills
Debt Consolidation: If you own your home you may be able to lower your cost of credit by consolidating your debt through a home equity loan or second mortgage. But these loans require you to put up your home as collateral. If you can’t make the payments or if your payments are late you could lose your home.
Rather than take out a costly loan that may produce limited long-term savings, opt for a proven debt relief program from a trusted provider. National Debt Relief one of the country’s foremost authorities on debt consolidation, has been providing debt settlement services for years.