Why Debt Management Companies are not Always Good for the Customer

Are you standing at that point in your life when a phone ring makes you paranoid, and the tension about debt keeps you awake at night? The reason could be a personal crisis, illness, recession or downright your faults like gambling or overspending. It could be overcome, there are always ways. You don’t need to go broke over a bad period in your life. If someone you know is in such trouble, consider the options thoroughly. A wrong decision might push you even further into debt. Take a look at what are the options and what could be the ramifications. It all depends on how much debt you are into, your discipline level and how you are planning to overcome it. Fortunately, there are options.

Consider self help

If you could take control over your own financial situation, nothing would be better. Start listing your income sources and list out all your fixed expenses. These would be the fixed components in your list. Next you have to list out the variable expenses which would differ month to month, like entertainment, travelling and bills. This could be a key to tracking your expenses, if you write the expenses down, you know exactly where your money is going and you can manage them well. Take out whatever little saving you have at the end of the month and pay your own debt. Easiest way you could settle down your debt.

If you are going to opt for self-help, these are some tips for you.

Manage mortgage and auto loan

If you have secure debts, it would probably be against some of your property. It could be your house or car, on stopping the payments for these, lenders will foreclose on the house and take away your car. Unsecured debts are mostly credit card bills, unforeseen medical expense and other loans.

To avoid foreclosure or repossession on your house and car, contact the lenders immediately. You could ask them a little time, which lenders with food faith can grant you. If you think you can’t do this, selling your car could be a viable option, because on repossession, lenders would do that anyway and that could profit you in no way. Whereas by selling it, you can probably pay off a loan or two and come up in the financial stress ladder. For other lenders who are not that lenient, ask for a re-planning of your mortgage and with some additional charges and fees they would arrange that. Both buy you some time to figure out a game plan.

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Deal with Debt Collectors

Debt collectors sometimes take it upon themselves to practice vigilante justice. Although there are rules and regulations about what is the legal behavior for them and what is not. Calling at work or too early in the morning or too late at night, all are illegal and unfair practices. Calling a court mandated written request to keep distance will help you to deal with them.

Convince your creditors

If you are having trouble making both ends meet, let them know. Tell them your problem and work out a modified payment plan. Don’t wait for them to sell you up to a debt collector. This happens when creditors have given up hope on you, and this reflects badly on your credit score.

When self-help does not work, comes the ultimate question. Whether to go to a Debt Management Company (DMC)? What are the pros and cons of this game plan? Let’s take a look.

Debt Management Companies

If you have significant amount of debt that you could not work out with your creditors, most people will be turning to a service as such. Depending on the type of service you will be instructed on a plan to repay your creditors.

But why are these DMCs being so good to you? Well there is a story here. And don’t go to a DMC before you know the ramifications.

Before you consider a DMC, find out what the State Attorney General and consumer rights agency have to say about the company. If they have a concern, then so should you. Do some homework on what services you want from the DMC and how much would you have to spend for it, because a loan repayment plan with a DMC is a yearlong process and it will be long before you start seeing any actual difference in your financial status. Don’t rely on what they promise; make a document out of every promise. If you don’t have something in writing, don’t trust that.

What are the risks?

Although a DMC might help, there are certain risks:

1. Money deposit:

Some programs might require you to go on a payment plan for 36 months by storing a certain amount in a savings account. Check your budget whether this could work for you. This depends completely on your financial capability.

2. You are not getting what you pay for:

Your creditors are under no obligation to mitigate with a DMC. They have every right to refuse to the plan, and in that case the fees and charges you pay could be lost for some of the debts, which will remain unsettled. Debt companies negotiate small loans first, so meanwhile your large debts will keep on increasing.

3. SCAMS:

Debt settlement market is unregulated, and some DMCs could simply not keep up with the guarantees that they make. And some others will take the money for first few installments in their own accounts as charges. So for the first few months, the creditors get nothing and your debt continues to generate more and more interest.

So do thorough researches on the company, their reviews, review by consumer forums etc. as all these could provide you with most of the information you are looking for, for which DMCs qualifies as an exception.

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