The Federal Trade Commission and most consumer advocate groups state that the majority of debt management and credit repair companies are scams that do more harm than good. There is no quick fix to get rid of debt or manage it effectively overnight. A good debt management program focuses on the long term, forcing people to make lifestyle changes in which they learn and practice efficient budgeting and maintain a disciplined plan of consistent debt elimination.
Your Best Program Is You
Popular financial experts like Suze Orman and Dave Ramsey feel that the best debt management program is you. They advise each person to learn budgeting, financial disciplining and the whys and hows of money to be able to become financially independent. Even the most effective financial coach or debt company cannot help you if you continue to spend more than you make.
There are several techniques a person can do by themselves to begin properly managing their debt. One example is Dave Ramsey's, "Debt Snowball Plan." He advises to first gather $1,000 cash as an emergency fund, then list the debts you have with the smallest balance first. If two debts have the same balance, then list the one with the higher interest rate first. Pay off the smaller debts as soon as you can. Eliminating credit cards or loans one by one will give you a feeling of accomplishment and motivation for continued discipline in following the plan. Spreading payments to each card or loan dilutes your effort, not giving you any feedback on your progress.
The Business of Debt Management
Debt management and debt counseling have become a big business in which many debt management companies are connected to the same banks and financial businesses that provided the loans and credit cards and aided people in getting into debt in the first place. Many of these companies make their money by combining a person's debts into one, lowering monthly interest and payments, but extending payment terms. As an example, let's say you have four debts each at $1000 and are paying the minimum of $40 per loan ($160 per month). It would take you 25 months to pay it off (in the real world, due to interest, it would take longer, but this is a simplified example). Many debt management companies will combine these four loans and have you pay an amount such as $114.27 for 37 months, which lowers your monthly payment, but in the long term, you will actually be paying $ 4,227.99. Since you have not changed your spending habits, it is likely you will return to debt within a short time.
Primerica Financial Services
One company that focuses on a lifestyle change and gives you the tools to manage your debt by yourself is Primerica Financial Services. They provide a free financial needs analysis, in which an agent will analyze your financial situation and advise you about fixed-interest loans, first or second mortgages, mutual funds, and how to cut costs to become financially independent.
To be sure you are getting accurate debt management advice, and to further research debt management resources, visit www.nfcc.org, the National Foundation for Credit Counseling, a 50-year-old nonprofit credit counseling network that aims to help consumers with debt problems.
- Photo Credit scissors and credit card cut in two image by Warren Millar from Fotolia.com
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