A Debt management company employs financial advisers who are knowledgeable in consumer credit, money, debt management, and budgeting. These debt counselors are aware of the problems that plague debtors and are capable of working out a solution to these problems.
This is how a Debt Management Program works:
o The Debt Management Agency informs the creditors that the debtor has entered a DMP. Creditors may agree to reduce their interest rates or waive late fees decreasing the total amount of debts.
o The debtor and the Debt management agency work out a schedule for the payment of debts.
o The debtor deposits money with the agency that in turn pays the creditors.
o The debtor agrees not to accumulate anymore debts and to set up a fund for emergencies.
To keep updated with your DMP, remember to:
o Pay regularly and on time.
o Read your monthly statements. Make sure your creditors are being paid. Get in touch with the debt counsel or immediately if you are unable to make a payment or if you find that your creditors are not being paid.
Be aware that if the agency handling your DMP is late with the scheduled payments, the consequences can be just as damaging as if you yourself have done it. That is why it is very important that you read your monthly statements. Contact your creditors immediately and make arrangements. Otherwise, you could lose the progress you have made with your debt. You can also lose the benefit of low interest rates and waived fees, incur late fees that add to your debt, and get late marks on your credit report.
When choosing an organization to manage your debt, consider these factors:
o Services offered - a good company's services include budget counseling and free information on savings and debt management and budgeting. Avoid companies that charge fees for information regarding their services.
o Your counselor should discuss every aspect of your finances w ith you. These discussions should include not only your payment sched ule but also how you can solve your problems and avoid getting into debt again. This way your counselor can customize a DMP that fits your particular situation. Beware of counselors who push debt management plans down your throat without spending some time reviewing your financial status. Since this is your debt, and the outcome of your DMP can greatly affect you, you should be more than interested to know the details of your DMP.
o Debt Counselor should be licensed to operate in your state. Check up on your counselor's qualifications and training to ensure that he/she is qualified to handle your finances. Find out from your local Consumer Protection Agency or Better Business Bureau if complaints have been made against them.
o You want to get this right the first time because it can affect you negatively if you chose an organization that cannot meet your needs. Make sure there is a written agreement or contract between you and your counselor.
o Get a detaile d quote of all fees involved. Your counselor should inform you of all and any fees such as an up front fee upon signing up or any other monthly fees. If you cannot afford to pay it, find out if there are conditions wherein they can waive or reduce it.
If your debt management company goes out of business, they will usually notify you if your DMP will be transferred to another company. Find out what you can about this other company. See if the terms of your current DMP will still be eligible if you transfer to another debt counselor.
Otherwise, you may need to act to ensure that your repayments will continue:
o Inform your creditors that your credit counselor is going out of business. Find out if you can continue to enjoy the benefits of a DMP although you will now be dealing with your creditors directly.
o Check your credit report. Look for missed payments.
o If you pay your DMP through the bank, contact your bank to stop payments.
Before y ou sign up with a debt management plan (DMP), it is very important to learn more about the cost, nature, and benefits of the services that debt management companies offer. It is the obligation of the company to educate you of the pros and cons of using debt management as a solution to your financial problems.
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