Understanding Debt Management Services
When debt overwhelms you, as it sometimes will, and you find that it is hard for you to make ends meet let alone service the debts, you can always turn to debt management services. You get such a service through a credit counselor whose main aim would be to help you manage your finances well and not make a profit off your sorry state. Basically, a debt management service will transfer all payments from you to your lenders and through the transfer they get their commission.
Note that debt management services are only applicable in unsecured loans and are quite different from credit counseling services. Majority of debt management companies will also extend debt consolidation services where all your debts will be consolidated under a single loan. This means that you will be servicing one loan instead of many from different lenders.
It is to be noted that once you consolidate your loans under a single umbrella, you will be able to manage your debts more easily. Be advised though that your credit history will greatly be affected as you will become a high risk debtor when looking for a loan in future. That notwithstanding though, you would rather tarnish your credit than file for bankruptcy as the repercussions are adverse to say the least.
With that said, it is advisable to discuss all the possibilities that may arise with a debt management service provider before signing up for their services. One of the things to ask is what is likely to happen in the event of an emergency that will make it impossible for you to pay your monthly remittance on time. You can be very surprised that you will be charged a very huge penalty fee for such an emergency that is beyond your control. As such, it is advisable that you deal with a not-for profit institution because a for-profit institution will be more into making that profit and not really help you manage your finances.
Even so, you ought to be very cautious because you will find some companies advertising and marketing themselves as for non-profit yet they aren’t. There is no 100% guarantee that you will get better services when dealing with a non-profit organization. As such, you are advised to look for an institution that is accredited by the National Foundation for Credit Counseling. An accredited company is less likely to charge despicable fees or take advantage of the clients.
As a point of note, it is advisable to first negotiate with your credit card company or your creditors to find out whether they can reduce the interest rate or waive some fees. It can also be a viable alternative to seek the services of a normal lender in place of a debt management service. If your credit rating is above the accepted standard, you can even apply for an unsecured loan to offset all your pending debts. Last but not least, when the debts seem unmanageable, your last resort should be to file for bankruptcy.
In conclusion, when dealing with a debt management service, you should always be wary of a company that makes late monthly remittances as it can tarnish your not-so-good credit history. Ensure you demand for an explanation as to why they extend late monthly remittances failure to which you should cancel the service immediately.
