According to Bankrate, 24 percent of Americans have more credit card debt than they do savings. Debt for many people is an extremely serious problem. One of the only solutions available to consumers is debt management. Below are four things you should know about the subject.
1. Debt Management Companies Are Often Advertised as Non-Profits
It is true that many debt management companies have achieved legal non-profit status. Most are also very willingly to alert you of this fact. However, you should take this claim with a grain of salt.
While they may technically be non-profits, debt management companies are still in the business of making money. As per the guidelines of the law, the profits from their debt management services must be distributed differently than would be the case with a for-profit corporation. You will receive a bill for the services rendered. In most cases, this will be a monthly bill.
2. You May Be Able to Perform Some Debt Management Services on Your Own
You should also be aware of the fact that it is conceivable that you could perform some of the services offered by debt management companies on your own with a bit of work. One of things debt management companies do is negotiate on your behalf with different creditors to create new repayment plans for paying off your debt.
You could indeed do this on your own. Most creditors are willing to negotiate to make monthly bills more feasible for borrowers that are seriously struggling. The incentive is easy to understand. If you file for bankruptcy, the creditor may not get paid back at all.
3. Using Debt Management Services Can Hurt Your Credit Score
Forbes has suggested that using certain debt consolidation techniques can actually improve your credit score. However, as many people know, debt management services do have the reputation of causing users’ credit scores to drop.
This usually happens as the result of changes made to when bills are due and accounts that are closed during the negotiations. If you credit is in good standing and you are current on all your payments, debt management services may not be the right choice.
4. You Won’t Have Access to New Credit
There are also other possible consequences of utilizing debt management services. For one, you won’t be able to open up new lines of credit while enrolled in the program. Only enter into such a program if you anticipate no need for more credit. For example, if you wish to buy a car, you won’t be able to obtain an auto loan. However, it’s probably a good idea in general to not take on more debt while trying to get your financial house in order.