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 real result it is important that you know how these companies work and their unethical practices.
How Debt Management Services Work
Many consumers mistakenly assume that debt management and credit counseling are the same type of financial service. But they are not synonymous. While both 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 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 need 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.
Scams of Debt Management Services
Beware of credit counseling or debt management companies 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 program 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.