Choose a Debt Management Program

A debt management plan may help, but do your research and consider all your options first.]]If your finances take a turn for the worse and you find yourself drowning in debt, a debt management program may help you keep your head above water. Debt management programs (sometimes called debt management plans) may be able to help you negotiate lower interest rates, get late fees waived, work out a payment schedule that's acceptable to you and to your creditors, and consolidate your monthly payments into one. Keep in mind, however, that there are a lot of debt management programs that are unreliable or that charge exorbitant fees, and there are some that are just plain fraudulent. Also,keep in mind that the purpose of an agency debt management program is to get you out of debt and avoid bankruptcy. If your credit isn't damaged, it probably will be by utilizing a reputable consumer credit counseling agency. Because their job is to help you live while paying off your creditors and acting on your behalf. Once you enter into the agreement with an agency, let them handle the collectors.

Steps

 * 1) Do it yourself. The best kept secret in the debt management industry is that you can do most of the things debt management agencies do, and if you do it yourself, you can save yourself a lot of money in fees.  Make a budget, cut unnecessary expenses, prioritize your debts, and call your creditors to ask if they'll waive your late fees, reduce your interest rates, and/or work with you on a payment schedule.  You may even be able to get them to "re-age" your account, which means that they report your past-due account as current.  There's no guarantee that they will, but there's also no guarantee they will if you go through a debt management agency, so you've got nothing to lose by trying.  Many times creditors will be happy to work with you if you make a good-faith effort to pay them. Also keep in mind that signing up with a Credit Counseling Agency can negatively affect your credit score.
 * 2) Find a good credit counselor. Almost all debt management programs are administered by consumer credit counseling agencies--so much so, in fact, that the terms "credit counseling" and "debt management" are often used interchangeably.  They're not the same, though.  You can and should get real credit counseling before you commit to a debt management program, and a credit counselor can and should help you make a budget and explore other options (such as self-help methods or consolidation loans) with you instead of just pushing you into a debt management program.  Thoroughly researching the agency is the most important thing to do before deciding to enroll in their debt management program.
 * 3) Look for a licensed, accredited, non-profit agency, and be sure to verify that they are currently licensed in your state (unless you're in a state that doesn't require licensing), have current accreditation and that they do indeed have non-profit status. Understand, however, that while these measures can help establish a firm's legitimacy, they are no guarantee, and you still need to research the agency. Note also that a non-profit company does not mean that they do not charge for their services, it only means that the company will distribute all profits to the corporate officers at the fiscal year end, thereby zeroing their profit.
 * 4) Find out exactly how the program works. The terms "debt management," "debt consolidation," and "debt negotiation" are often used interchangeably, sometimes in an effort to confuse or deceive people and sometimes quite innocently.  They do, however, refer to three different options, so regardless of what a program is called, find out what it is.  For more information on the differences between these options, check out the article on how to consolidate loans.
 * 5) Make sure the company requires complete information from current statements before giving you a quote. The debt counselor will need you to provide all your current credit card and loan statements before they can tell you how much your monthly payments will be or how long it will take to complete the program.  Beware of anyone who gives you a quote without thoroughly researching the following first:
 * 6) *your account statuses
 * 7) *creditor names
 * 8) *balance transfer, cash advance and large purchase activities
 * 9) *minimum payment amounts
 * 10) *interest rates
 * 11) Avoid outrageous upfront fees. A small initial fee (up to $50 or, in rare cases, as much as $100 if you have a lot of debt or high income) is normal, but large upfront fees are out of line.  If any agency asks for a fee (or donation) make sure that you know what it will cover, and get it in writing.  Find out if you'll have to pay any additional fees to start the program.  Don't get tricked into paying one "consultation fee," and then an "application fee" or "an enrollment fee."  If you're truly unable to pay, look for an agency that is willing to waive the fee or spread it out (without charging additional fees for doing so).
 * 12) Avoid high monthly fees. Most debt management plans charge a nominal monthly fee to cover the administrative expenses.  Depending on the number of creditors you have, the monthly fee may vary, but it generally should be between $2-5 per creditor or, at most, not more than $50 per month.  Make sure the agency doesn't charge any other maintenance fees (i.e. an annual fee) in addition to monthly fees.
 * 13) Find out how payments will be disbursed to your creditors. Debt management companies are notorious for sending payments late and getting their clients into trouble with creditors.  Make sure the agency will send your payments to creditors on time and within the correct billing cycle.  Ask how soon they will disburse your payment after they receive it, and find out how you can track the payments made.  They should send you a statement each month or have some way for you to look it up online.
 * 14) Find out how your personal information will be protected.  When you enter a debt management program, you have to share some of your most sensitive financial information with the counseling agency.  You'd better make sure they won't sell it to others or disclose the information to anyone except the creditors you've agreed to include in the plan.  Get a written privacy policy from them, and ask what safeguards they have in place to protect your information.
 * 15) Accept a plan only if you can fulfill your requirements. If you can't make the monthly payment the program requires, don't enroll.  Ask if they can get it any lower, contact your creditors yourself, and/or check with another debt management agency.  Also, be aware that many debt management plans require you to avoid taking on any additional debt or at least any additional revolving credit debt (i.e. credit cards, store charge accounts).  Understand the terms and conditions, and make sure you can follow through on them.
 * 16) Get everything in writing. Before enrolling in a plan, make sure you get a contract.  Get all verbal promises in writing, and read the contract very carefully to make sure the terms are the same as those you discussed.  Watch very carefully for hidden fees.  If a company won't send you a contract before you make your first monthly payment, don't pay them and go elsewhere for help.
 * 17)  Also cut up every credit card you have so you won't go into any more debt than what you already have. This will keep you out of bankrupcy.

Tips

 * A process of negotiation will occur between your debt consolidation agency and your lenders. Many reputable debt agencies will have considerable negotiating power with your lenders and will be able to help you in both the short and long term. There is no guarantee, however, that the negotiation will be successful. Lenders do not have to accept reduced repayments or altered terms.
 * On rare occasions, a creditor will require that you make a payment to the debt management or credit counseling agency before they will accept the proposed plan. If an agency tells you this, however, call the creditor to verify it, and make sure the payment will in fact be sent to the creditor.
 * Check with the Department of Justice. Beginning October 17, 2005, all bankruptcy debtors have to go through approved credit counseling. Credit counseling agencies must be approved and are monitored by the Justice Department.

Warnings

 * Continue to make payments to your creditors until you are certain that they have accepted the debt management program and you know when the debt management agency will pay the creditors. If you miss payments in the meantime, you may incur further charges and the creditors may back out of the agreement.
 * It cannot be stressed enough that you need to take the time to thoroughly research your options. If you fail to do the proper research and get taken by a fraudulent or deceptive company, it is you who will lose money (sometimes a lot of money) and have to face the consequences.
 * This article is intended to provide general guidelines only and is not intended to replace professional legal or financial advice. Individual financial circumstances vary, and you need to choose an option that works best for you

Related Tips and Steps

 * How to Get Credit Counseling
 * How to Make a Debt Management Program Work for You
 * How to Choose a Credit Counseling Agency
 * How to Get Out of Debt
 * How to Consolidate Loans
 * How to Prioritise Your Debts
 * How to Repair Your Credit
 * How to File Bankruptcy
 * How to Bank
 * How to Avoid Property Repossession
 * How to Start Living Frugally