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Debt Counseling Agencies
 Jun 08, 2004

Many people struggle with managing their debt. Debt management or debt counseling agencies are designed to help people effectively manage their debt. This article help you know what to consider when choosing a debt counseling agency.

Many people find that they need a helping hand when it comes to managing their debt. This is because debt can be overwhelming. As a result, it is not unusual for some to choose debt counseling or debt management services. However, it is important to be careful. In addition to agencies that are interested in helping people weighed down with debt, there are also those that are more interested in making a great deal of money through fees.

Considering your debt management or counseling options

The first thing you need to take into consideration when choosing a debt management or debt counseling agency is what sort of services you are getting. There are two main types of debt management:

  1. Debt settlement. Debt settlement is also called debt negotiation sometimes. In this option, you stop paying your creditors. A third party debt management agency negotiates a settlement amount that you pay to each. Usually the amount settled on is less than the total of what you borrowed with interest. However, it is rarely less than the original principal. With debt settlement, you make regular payments to the debt counseling agency. When the settlement is reached, the agency pays of the debt on your behalf, with the money you have been paying in.
  2. Debt consolidation. The other common method of debt management or debt counseling is consolidation. This is when you gather all your debts together into one large debt and make one payment. This is either done through a loan, or the debt management company collects your single payment and disburses the money to your creditors.

It is important to know which method is being employed by the agency before you commit. Each way has different effects on your credit, as well as differing levels of effectiveness, and can result in different amounts of money being paid back. Do your homework before you get started.

Other considerations when choosing a debt management or debt counseling agency

Beyond the type of agency you are considering, there are other issues to think about in terms of which company you will choose. Here are some questions to ask yourself and the agency before you make your decision:

  • Is there a minimum amount of debt needed to qualify for services? What is that amount?
  • How is the monthly payment determined? Is there a way to keep it from being too high?
  • What method is used by the company when paying back debt?
  • Does the company negotiate lower interest rates and payments with creditors?
  • Are there types of debt that do not qualify to be included? Often, student loans cannot be included in debt plans from management and counseling agencies.
  • Does the company offer resources for budget making and plans for staying out of debt?
  • What are the consequences if it turns out you cannot keep up with the new payments?
  • Does the company let you know when payments are made to your creditors? Does the company let you know when the program has started?
  • Can you look at account status and other reports? It can help if the debt management or counseling agency has online account access. Find out how often you are allowed to get account updates.
  • Does the company support you if problems arise with creditors?
  • How does the agency secure personal information?
  • What kinds of fees and charges are there associated with the agency?

One of the important things you should pay attention to includes the last item on the list: fees and charges. Many debt management and debt counseling agencies charge very high rates for their help. There are service charges and sometimes administrative fees. Other companies charge a percentage of total debt entered into the program. You should look for transparency, as well as reasonable rates.

Also, you should be on the look out for scams. Some debt management and debt counseling agencies are little more than fly by night scammers. These types of agencies will take your money, and sometimes may not live up to their end of the deal. In some cases, there are outright scams where you do not realize anything is wrong until after you have made two or three payments and you find that nothing has been going to your creditors or into an escrow account to pay for a settlement.

Make sure that you do research before choosing a debt management or debt counseling agency. Get references, and check with the Better Business Bureau. You want to make sure that you are getting real help for your debt problem.

Related Article: Debt Consolidation Agency >>

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