How to Pick a Debt Management Plan
If you have a considerable amount of credit card debt, you may have considered a debt management plan to help you pay it off and avoid bankruptcy. Here are some things to consider before you contract with a company to help manage your debt.
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Instructions
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Find out how much you really owe. Write down how much you owe on each of your credit cards, any car loans or other outstanding debts.
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Get in touch with the National Foundation for Credit Counseling (NFCC), or one of its affiliates, usually known as Consumer Credit Counseling Services (CCCS) if you think you need professional help.
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Decide, after a consultation, whether you are going to contact creditors yourself to try to lower credit card interest rates or whether you will contract for a debt management plan, or whether your circumstances are so bad you must file for bankruptcy.
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Research the company or organization you decide to contract with for a debt management plan, and make sure it is legitimate before signing anything.
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Start your debt management plan and stick with it. Often you can improve your credit if you work with creditors to pay down your debt. A debt management plan is one way to do that.
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Tips & Warnings
If you are not behind on any payments and can at least make the minimum payment on your credit card bills each month, you may not need professional help with managing your debt. In that case, take advantage of resources like Oprah's Debt Diet or buy a personal finance book to give yourself ideas on how to pay off your debt.
CCCS is a non-profit organization available in most cities that will give you a free debt management consultation to help you determine whether you can manage your debt yourself, need a debt management plan or whether you should file for bankruptcy.
Typically a credit counseling company you contract with for debt management will contact your creditors and negotiate lower interest rates and payment plans you can afford. If you are not in dire straits and your credit is still good, you may be able to negotiate a lower interest rate on credit cards yourself.
In the past few years the Federal Trade Commission (FTC) and some states' attorneys general have sued some debt management companies for unsavory business practices.
Red flags about choosing a debt management company include high fees for setting up a debt management program and claims that the company can eliminate your debt with little or no payment to creditors after you contract with the company.
