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Debt management adds credit counseling as powerful tool for financial freedom

Joining a debt management program may be the smartest way to financial freedom if you find yourself facing a mountain of money problems. 

This credit counseling can be a better solution than either debt consolidation or debt settlement. By its very nature, debt management attempts to give you the tools and support you need to break the debt cycle … once and for all. 

But sometimes people are unsure which path to take towards correcting their bad financial habits. Here are some common questions that may give you more information about using debt management and credit counseling as a successful method.

Debt management solves your money problems by dealing with the real financial issues

1) How is debt management different than either debt consolidation or debt settlement? 

Debt management helps you review your current financial situation and take steps to get your spending under control. A credit counselor will review your total financial situation and recommend adjustments. But it goes a step further, a good debt management organization will also help you negotiate lower interest rates and extended payment plans on your current unsecured debt (where the creditor holds no collateral). The alternatives such as, debt consolidation creates a single loan to pay off all your debts, but won’t help you stop the spending that created the initial problem. Debt settlement uses the appropriate debt collection laws to reduce your debt to a fraction of its original size, which could be great, but won’t necessarily stop you from getting into the same financial mess again. Check out the various possibilities before making your decision.

2) How much does debt management cost? 

Many debt management organizations are non-profit, requiring a minimum monthly donation (upwards of $30) to help defray administrative costs (maintaining accounts and mailing checks). These donations may be tax deductible. You are only enrolled for as long as you want to be, and can terminate the plan at any time.

3) How does debt management work?

 You choose which creditors to add to the program, and they are contacted by the credit counselor. He/she indicates your desire to get out debt and negotiates on your behalf for concessions. Since creditors just want to be paid, most will bring your account current, stop late and over-limit fees, stop collection calls and reduce or even stop interest charges. You then pick a payment date that works best for you – any day from the 1st to the 30th – within 30 days of enrollment. Once creditors receive that first payment, all collection activity should cease (as long as regular payments are made). Some may even ‘re-age’ your account, and bring its status to ‘current’ showing no past payments are due.

4) Is my financial information kept private? 

A good debt management organization and its credit counselors are bound it the rules of professional conduct to maintain full client confidentiality. Only those creditors added to the program will be notified that you are using a credit counselor to represent you.

5) What do I need to get started? 

Many debt management organizations can take your information online. You can start immediately. You just need a list of your creditors with their phone numbers, account numbers, balances, interest rates and monthly minimum payments (for each one). Use your most recent statement to ensure your credit counselor has the most accurate and current information for the application process. Any inaccurate data may lead to rejection by your creditors of the debt management proposal.

6) Will debt management help me with my overall monthly budget and spending patterns? 

Since most creditors will close or deactivate any accounts in the program to avoid racking up more debt, you will immediately be forced to examine your cash versus credit spending habits. In addition, the credit counselor will help you plan a more efficient and effective monthly budget based on a single payment to your unsecured creditors. This can be paid through automatic debit from your savings or checking accounts, using specific guidelines that allow you to pay to lower possible monthly amount yet remain in good standing.

7) What impact does debt management have on my credit rating? 

It is neither a positive or negative if you are still making payments. And if you meet the acceptable requirements of your creditors, they will have no negative information to report to the credit bureau. So there is a chance that your debt counseling status will not be reported. Everyone simply wants the total balance paid off in a timely fashion.


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Credit  Tip
Debt management helps you review your current financial situation and take steps to get your spending under control. A credit counselor will review your total financial situation and recommend adjustments. 

 

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