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People on Debt Management Plans: A Must-Do List

Reputable credit counseling organizations employ counselors who are certified and trained in consumer credit, money and debt management, and budgeting. Those organizations that are nonprofit have a legal obligation to provide education and counseling.

But not all credit counseling organizations provide these services. Some charge high fees, not all of which are disclosed, or urge you to make "voluntary" contributions that can cause you to fall deeper into debt. Many claim that a debt management plan is your only option before they spend time reviewing your financial situation, and offer little or no consumer education and counseling. Others misrepresent their nonprofit status or fraudulently obtained nonprofit status by misrepresenting their business practices to regulators.

Must-Dos for Anyone with a Debt Problem

Organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a DMP, you deposit money each month with a credit counseling organization. The organization uses these deposits to pay your credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule they�ve worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you are repaying through a DMP.

In debt consolidation, it is important to:
1. Make regular, timely payments.
2. Always read your monthly statements promptly to make sure your creditors are getting paid according to your plan.
3. Contact the organization responsible for your DMP if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.

You need to be aware that if payments to your DMP and creditors are not made on time, you could lose the progress you�ve made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the DMP, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts "re-aged" again (reported as current), even if you start a new DMP with a new counselor. That means your credit report will have �late� marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off.

Before Choosing a Credit Counselor

1. Look for an organization that offers a range of services, including budget counseling, savings and debt management classes, and counselors who are trained and certified in consumer credit, money and debt management, and budgeting. Counselors should discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems now and avoid others in the future. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
   
   2. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation. DMPs are not for everyone. You should sign up for a DMP only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.
   
   3. Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.
   
   4. Avoid organizations that charge for information about the nature of their services.
   
   5. Don�t commit to participate in a DMP over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you are told you need to act immediately, consider finding another organization.
   
   6. Try to use an organization whose counselors are trained by an outside organization that is not affiliated with creditors.
   
   7. Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you�re concerned that you cannot afford to pay your fees, ask if the organization waives or reduces fees when providing counseling to consumers in your circumstances. If an organization won�t help you because you can�t afford to pay, look elsewhere for help.
   
   8. Credit counseling organizations handle your most sensitive financial information. The organization should have safeguards in place to protect the privacy of this information and prevent misuse.

What is Debt Consolidation?

There are many companies out there offering "Debt Consolidation" which is also known as Debt Consolidation Loan, Debt Management Plan, Credit Counseling, and Debt Elimination.

There are many reasons why people get into debt. Losing a job, illness or accidents, all of these can suddenly plunge one into unexpected expenditure, and often the only way to deal with the emergency is to use debt o credit. There is a tendency in this situation to keep on borrowing. This process becomes so easy - credit card companies and banks seem eager to give you cash, and the interest payments, often seem insignificant. Before you know it, you are deep in debt, owing money to several institutions and credit companies, and the bills are increasing.

Debt consolidation involves replacing a number of smaller debts at varying rates with one single debt at a single interest rate. For some people, consolidating debt may be a good thing - for other people it may be bad. It all depends on an individual's circumstances.

Some debts are relatively good. Mortgages and student loans are good debts because they have funded the purchase of a valuable asset (a home or education) and they are usually tax-deductible. In contrary, getting debts on credit cards is the worst form of borrowing, as the interest rates are massive, and the card companies actively try to encourage you only to make the minimum payment, thus keeping you in debt for longer time, and maximizing the amount of interest they get from you.

So is debt consolidation a good deal? It depends.
If you are really under pressure, sometimes consolidation can be the only way to get yourself out of debt. The downside is that the consolidation payments, while appearing to be smaller than the sum of your previous debts, usually last for a longer term, and you effectively pay more over the life of the loan. Remember that your debt consolidation company must allow you to pay more than the standard monthly payment if you wish. You may have a sudden bonus and paying down the debt makes perfect financial sense.

You make some fundamental changes to your life:
1. You have to get back on the track of spending less than you earn
2. Have a plan for paying the debt off after you�ve consolidated
3. Credit cards are like loans. Don�t overcharge them anymore.

Be careful from company that their claims seem to good to be true.
Claims like:
1. Consolidate your debts into one low monthly payment.
2. Reduce your debt by 40%-70%.
3. Eliminate interest and late fees.
4. Get out of debt in a fraction of the time.
5. Rebuild poor credit fast

What is Debt Negotiation?

Debt Negotiation or Debt Elimination is considered a specialty service, which is mostly offered to people who "fall out" of a debt consolidation program, can't make the minimum payment of a debt consolidation program, or have large outstanding debts on which they haven't paid in the past 3 months.
The main benefit of a debt negotiation service is that clients usually only pay around 50% of the amount they owe to their creditors. However there are some downsides to debt negotiation too.

Once you sign up for a debt negotiation program you stop making payments to your creditors. The debt negotiation company then takes monthly payments from you, which it stores up in a holding account, or it has you store up the money in your own account. During this process of accumulation, the debt negotiation company is handling your creditor calls and negotiating with your creditors for a lower payoff amount, typically around the 40-50% range.

Once a settlement is reached with your creditors, a lump sum payment is made to them. Most debt negotiation companies also require the creditor mark the credit report as "paid in full" so it doesn't show up negative on your report once it is settled.

The downsides of debt negotiation programs are:
1. Your credit will be awful while you're in the program.
2. If the creditor never agrees to settle then you end up with bad credit, and in worse shape than where you were before.

Debt Consolidation Loans

Debt consolidation loans are personal loans that allow people to consolidate their debt into one monthly payment. The payments are often lower because the loan is spread out over a much longer period of time. With one monthly payment and a fixed monthly payment schedule, you may actually see the end to those monthly payments.

Although the monthly payment may be lower, the true cost of the loan is often dramatically increased when the additional costs over the term of the loan are factored in.

The interest rates on personal debt consolidation loans are usually high, especially for people with financial problems. If you have a lot of debt, it can be hard to find a consolidation loan at a lower interest rate. Lenders frequently target people in vulnerable situations with troubled credit by offering what appears to be an easy solution.

Personal debt consolidation loans can be either secured or unsecured. Unsecured loans are made based upon a promise to pay, while secured loans require collateral. Upon default of the loan payment in a secured loan, the creditor has a right to repossess any of the items listed as collateral for the loan. In many states, a person filing bankruptcy can remove the lien on the household goods listed as collateral and eliminate the debt.

Be careful about putting up your valued property as collateral. With high interest rates and aggressive collections, you might find yourself scrambling to save your car or personal property. If you�re not careful, you can end up deeper in debt than when you started

Bankruptcy Alternatives

There are two main options that we would suggest before choosing a bankruptcy:
1. Debt Consolidation
2. Debt Negotiation

There are essentially 2 types of bankruptcies you can file:
Chapter 7 and Chapter 13.

The purpose of bankruptcy is:
1. To provide relief when you cannot pay your debts
2. To return as much money as possible to your creditors

There are several steps involved with declaring bankruptcy.
1. You may want an attorney because legal paperwork must be filed in federal bankruptcy court. It is not mandatory but having the assistance of an expert may be very valuable.
2. You need to be aware of the filing fee (approximately $130), the administrative fee (approximately $30), and the attorney's fee (variable).
3. You must determine the type of bankruptcy you can file. There are primarily two types of personal bankruptcy available to a consumer: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy
A Chapter 7 bankruptcy gives you a clean slate. This means that many of your unsecured debts are discharged, and you don't have to repay them. But you maintain responsibility for your secured debt if it is considered exempt, like mortgage. A court-appointed trustee generally sells non-exempt property, such as real estate or personal property of value, and the proceeds are used to pay your creditors.

Chapter 7 does not eliminate:
1. Government student loans
2. Taxes
3. Fraudulently created debts
4. Alimony
5. Child support
You will continue to be responsible for these debts, even after you file a Chapter 7 bankruptcy.

Chapter 13 Bankruptcy
A Chapter 13 bankruptcy, gives you some help with your unsecured debt. When you file Chapter 13, the courts appoint a trustee who is responsible for summarizing all of your debts into a payment plan you can afford. The trustee allocates your monthly income to your creditors.

When you may apply for this type of bankruptcy:
1. A regular source of income
2. Less than $250,000 in unsecured debt and less than $750,000 in secured debt
In Chapter 13 your debts are not discharged and you keep your property.

The Impact of Bankruptcy
1. Bankruptcy can stay on your credit report for up to 10 years
2. You may have difficulty re-establishing credit
3. You may have difficulty renting or buying a home for several years
4. Your debts can only be discharged once every six years under

The Final Decision
You may have other options that will work for your situation - make sure you explore them all. Making the decision to declare personal bankruptcy is not one to be taken lightly and should be considered as a last resort.

Make Debt Consolidation Firm Working for You

Finding yourself under huge debt is a nightmare turned reality for many people. No matter how hard they try to pay off their debt it just never seems to go down. This is where debt consolidation comes in. Debt consolidation allows you to have one bill from one company every month.

The first important step is finding a debt consolidation company that is right for you. You can take advantage of the internet to make your search. Look at the review of other people like you, find the best recommendations.
The company that you choose will send you a monthly statement with all of your bills consolidated into one. They are the only company you will have to pay for.

This can be great advantage for those who have trouble keeping track of the numerous bills they need to pay each month. You won�t miss or forget a payment. This can also be good for those who have many different, and possibly high, interest rates. Since the debt consolidation company will give you only one interest rate. Make sure that it will be much lower than many of your current rates, which will reduce your overall payment.

You no longer have to avoid creditors calling you. Since you are only dealing with one company there will only be one creditor to discuss any issues you may be having and one person to negotiate your payment plan.

However, there are many unreliable credit consolidation companies out there with only one goal in mind - to profit off of you and take your money. These are the types of companies that you should be avoiding!

How do you know which company is a legitimate company looking to truly help you? First, try to move away from companies who try to sign you into an agreement quickly or who do not take the time, to have an in-person consultation between you and one of their consultants

A good company will then determine if they can give you a lower monthly payment, without raising your overall repayment by doing things such as giving you a higher interest rate, than you already have. If so, they will let you know how much your payments will be and also help you determine exactly how long it will take to pay off.

Check your local Better Business Bureau, and any other consumer reporting agency you can find, to make sure there are not an overload of complaints about the particular company. If they have not been around long enough to tell then it is wise to go with a different company instead.

Debt consolidation can help you take control of your bills and mounting debt if it is done right. You have to pick the company you choose carefully and remember not to jump into an agreement to quickly. Take some time to read over and inspect any contract you are asked to sign.

Source from www.finance-portal-online.com