Debt Management 101 - 7 Key Rules Every Consumer Should Know
Choosing a debt management company is not something that should be taken lightly. What do you look for when choosing a credit counselor or debt management firm? There are dozens of factors to consider, but these 7 key rules to choosing a credit/debt management firm can make the process less stressful and may get you much closer to financial comfort faster and easier then you ever thought possible.
1. Get a Referral – Ask someone who has been in a similar situation. Take time to ask questions, to determine if they had a good experience with a particular firm or a bad experience. Getting information directly from another consumer who has used credit counseling or debt management in the past is an excellent way to learn before you agree to pay for services. In addition, a reputable company should be willing to provide examples of good results, without revealing another person’s private information.
2. National Accreditation – While no specific national or state accreditation will guarantee success, there are organizations in the U.S. with the soul purpose of promoting high standards and ethical practices in the consumer credit industry. The American Association of Debt Management Organizations are one of the most prominent in this industry. Members of this organization specialize in credit counseling, debt management plans, budget/finance industry education and much more.
3. Better Business Bureau Membership – Contact the Better Business Bureau in your city or region and ask for information about the credit counselor or debt management firm you are considering. You may also want to talk to someone in the State’s Attorney or Attorney General’s office to see if the company has been the subject of any regulatory action. Finally, if the firm in question has a website, check to ensure it’s a member of the online arm of the BBB and has been awarded its coveted “Reliability Program Online Seal.”
4. For Profit vs. Non-Profit Experience – Many consumers have a misunderstanding about Not-For-Profit debt management companies vs. For-Profit companies. They both offer concessions for the consumer whereas some states require non-profit status before the company can do business in the state. Credit card companies fund most Not-For-Profit credit counseling companies with Grants and Fairshare deductions as a way for them to recover money from consumers who are currently not making their payments. The biggest difference is that a Not-For-Profit does not pay taxes whereas a For Profit does. Study the company carefully to see if it uses “non-profit” status simply as a marketing tool.
5. Excessive Costs - In recent years, credit card companies and other lenders have reduced some of the funding for credit counseling. This has led counseling firms to increase their fees. Some of these increases are reasonable, but consumers should be careful not to get involved with a company that charges a large upfront payment just to establish an account. A baseline of $50 per month is a good guideline for an initial new debt management quote. In contrast, a credit counselor or debt manager should probably not charge a fee of more than $100 to establish your account and negotiate with your creditors. Some companies will waive their initial enrollment fees entirely if you can’t afford them.
6. Real Education – Try to find a credit counselor or debt management professional who is sincere about giving you information that will help you deal with financial problems. You should not have to pay extra for CDs or videos that require you to learn on your own. If the person you are talking with does not or cannot provide satisfactory answers to your questions, find another company.
7. A Written Plan – A reputable credit counseling firm or debt management company will take time to review your situation, help you with budgeting and money management, and put your individual plan in writing. This personalized plan should include details on how creditors will be paid, as well as realistic goals for returning you to full financial health. Some firms even offer a free debt comparison quote which is an excellent way to see how much money you can save, what your new interest rate may be and how long it will take you to get debt free on your debt consolidation program right out of the gate. Unrealistic promises should not be part of the plan. For example, a debt management or credit-counseling firm does not have the authority to change your credit report nor should it ever imply it has done so in the past.
Coming face-to-face with financial trouble may seem to be more than you can handle, at first blush. Following these 7 simple guidelines when choosing a firm will go a long way in ensuring your final choice is also the best choice for your current financial circumstances.