Being under overwhelming debt can be a challenging situation. You may feel your life is falling apart as you scramble to hold the pieces together. The worst thing about being unable to pay your debt is that it keeps growing with time. Moreover, it can give you sleepless nights and even impact your confidence. In such a situation, it is only natural to knock on every door that may look promising. For instance, debt management programs that claim to relieve you of your debt problems.
Did you know that debt management can cause more damage in certain situations? You need to understand a few things before signing up for debt management programs to protect yourself and your hard-earned money. Read more to know the details.
Understand what debt management companies do
Debt management companies do not get your debts waived off. Instead, they negotiate on your behalf with the lenders. They try to arrange for a better deal where the interest rates and fees get slashed. The negotiation results in a more affordable plan with a payment schedule ranging from 3-5 years. Well, it won’t hurt to try negotiating yourself first. The creditors may be keen to discuss the options with you. They would prefer the possibility of getting their money back much more than that of loan default.
They are not entirely non-profit
Most of these debt management companies claim to be non-profit. However, it is not entirely true. Some of these companies work for a fee; however, it may be minimal. Learn about the charges before you go ahead with them.
Opt for a reliable agency
The market is inundated with so many debt management companies that it may seem like a tough decision to select one. In essence, all the companies are the same in terms of the services they provide. However, you may want to sign up with a creditable agency that is affiliated with either NFCC or FCAA. The accreditation will ensure that the agency has passed certain quality standards. However, if you find their service dissatisfactory, it may be a wise decision to move on to another agency.
They are third party payment systems
This is one area where debt management companies can be of real help. If you are finding it hard to juggle multiple debts, you can transfer a lump sum amount to them every month. They will manage your money and distribute it across your loan accounts.
You can choose to put your debt on autopilot
After you have signed up with a debt management company, you have two options for clearing your debt. You can either repay your debt yourself or take the company’s services for the same. In the latter case, you can relieve yourself of all the worries and continue paying your regular payments to the company. Of course, you can increase your payments whenever you can. It is advisable to put your bonus or any windfall towards clearing off your debt.
Your credit score may change
Your credit score may improve or drop depending upon your current situation. If you have a considerable amount of debt in your name and have been irregular with your payments, this arrangement may work in your favor. Debt management programs will support your state and regular payments will improve your credit score. On the other hand, if you have been consistent with your loan repayment, approaching a debt management company may hurt your credit score. It happens as the negotiations for better interest rates will be recorded in your credit report. At the end of it, your credit score should not matter if you are not planning to avail of any loans immediately after clearing your loans. You will have time to improve your score once you are in a better financial situation.
You will be closing your lines of credit
Signing up with a debt management company comes with a few clauses. For instance, you won’t be able to apply for additional credit. If you do, your credit benefits may get repealed. It is advisable to plan for your future requirements before you approach them.