How Many Debt Management Company's are Really out There?
A Credit Article Contributed by Mark Mcclelland
Searching for a Debt Management Company
If a brief search through the Internet can give you any indication of the size of this industry, you'd certainly never go lacking fro want of a debt management company. There are both for-profit companies and non-profit companies, there are those that focus on credit counseling and there are those that specialize in debt consolidation, and there are good ones and there are, well, the scammers.
In most cases a debt management company will couple the services of credit counseling with those of debt consolidation, and thereby (along with attending to a few other meddlesome financial requirements) being able to enjoy the status of a non-profit organization. The really good ones provide educational programs, seminars, literature, and other kinds of support to help educate their clients, and the public at large, learning how to better manage their finances.
In such a way their clients should be able to avoid falling back into the same credit abuse traps that landed them in the lap of the debt management company to begin with. A lot of this education focuses on developing robust financial planning skills that can be used after completing their debt management program.
What about the Claims a Debt Management Company Makes about Its Debt Management Program?
Most companies make 3 basic claims: first, they claim that they can reduce your overall monthly payments; secondly they claim that they can get your interest rates reduced; and thirdly they claim that they can reduce the amount of time required to pay off your outstanding unsecured balances due, and all this by working directly with your creditors on your behalf.
But let's look at these claims one-by-one, starting with the second one. It's indeed true that your debt management company will probably be able to negotiate better interest rate terms with your creditors, but only with your unsecured debt creditors - your credit cards, medical bills and personal loans. But let's say that's OK, it's still a good deal - and don't misunderstand, it is, as far as that goes.
So, given this, let's continue on and look closely at the first claim - that they'll be able to reduce your overall monthly payments. While the most obvious implication is that they'll be able to get your creditors to forgive you a portion of your debt, nothing could be further from the truth. Any reductions in payments are achieved through a reduction in the interest rates you're charged - not from a reduction in the amount of debt you owe. So, as far as the first claims goes, it's probably also true, but not for the reason you might have thought.
And now, what about the third claim - that they can reduce the amount of time it'll take you to pay off your debts - well that's probably true as well, but also not for the reason you might think.
Did you know that if you stopped using your credit cards altogether and cut them up, and then made the minimum monthly payments every month right on schedule, never missing a-one, until the debt is paid off, that it would take you between 20 and 30 years to pay off the average unsecured debt balance a typical American family carries today? If you didn't you'll understand why they can claim that they'll help you pay off your debts in less time.
It turns out that their common repayment plans require 5 to 7 years; and yes, that's shorter than 20 to 30, to be sure...but it's far from what the claims imply.
And don't forget that you'll still have to make your monthly secured debt payments - your mortgage and car payments, your utilities, insurance, taxes, and the like.
What are the Requirements to Sign up for the Genesis Debt Management Program?
So What Do You Need to Get Started with a Debt Management Company?
Most companies require that you have a minimum amount of debt, say $2,500 to $5,000; that you have more than one creditor that must be managed, and that your various credit accounts to be managed not currently be in "collection". Although these requirements vary widely from debt management company to debt management company, the general pattern holds for most.
But before you get involved with ANY debt management company be sure to find a good one. You can start whittling down the number of firms you'd consider by ensuring that they belong to the Association of Independent Consumer Credit Counseling Agencies and / or the National Foundation for Credit Counseling. In addition, the FTC provides a massive amount of really good consumer oriented information on their website, at http://www.ftc.gov, that provides guidance and suggestions to use when you go looking for a debt management company.
