Debt management services are one of many
services offered by nonprofit credit counseling agencies or for-profit
debt management companies. Through their debt management plans these
companies help manage your debt by obtaining a single monthly payment
from you and then distributing the money among your creditors.
Many companies know that you have big debts to pay. Some take advantage
of your desperate anxiousness and promise you that they have the
solution to help you get out of debt. To avoid being scammed by
fraudulent companies that make big promises but give no actual result it
is important that you know how these companies
work and their unethical practices.
How a Debt Management Company Works
Many consumers mistakenly assume that debt management and credit
counseling are the same type of financial service. But they are not
synonymous. While both of them offer financial advice such as creating a
budget and managing money a debt management company goes even further.
At the beginning of a debt management plan a certified counselor will
work with you in creating a spending budget and negotiate the terms of
your debts with your creditors. They work with your individual creditors
to lower interest rate on high interest debts, waive late fees and make
late credit accounts current without requiring back payments.
Once the debt management agency is able to arrange a more affordable
monthly payment they require you to deposit a certain amount of money
every month, which will be disbursed to your unsecured creditors. They
also find a way for you to still be able to keep your credit cards for
essential expenses and any type of emergencies.
Debt Management Service Scams
Beware of credit counseling or debt management agencies who claim
themselves to be a non-profit institution when in actually, they are far
from being one. These companies scammed consumer debtors by telling them
they could easily get out of their debts, even with no upfront payment
fees.
They were, however, able to deceive their customers into forking up
contributions, voluntarily. Instead of sending the money out to the
creditors these monthly payments were transferred to
companies-for-profit. As a result, their clients suffered by damaged
credit ratings and annoying debt collectors.
So if you are considering enrolling in a debt management plan then do
your home work first. To avoid being scammed by fraudulent companies
check with the BBB and see if the agencies have received any complaints
from their clients. Make sure you work with a debt management service
that is accredited through the AICCCA or the NFCC and that has a long
list of satisfied clients.
