If you are in deep financial debt, creating a workable plan to reduce debt is essential in order to eventually become debt-free. Once you determine that you are going to work on reducing debt and getting your finances in order, you will need to decide if you will organize and implement a plan on your own, or if you will need the help of a debt consolidation company.
While the use of a debt consolidation company may be a good fit for some people, but if you are thinking of using one of these companies there are some things you need to now and look out for. The FTC has determined that some debt management organizations have defrauded consumers. Lets first talk about what debt consolidation companies say they can do for you and then we will talk about what you need to do to protect yourself.
Debt consolidation companies negotiate with all of the creditors to whom you owe money. They do this to try and reduce the interest rates that are attached to the debt. They also work with the creditors to try to extend the payment terms. They also talk about rolling all your debt payments into “one easy payment.” Almost always this restructuring comes in the form of a loan.
Basically you pay one payment to the debt consolidation company who in turn pays your creditors on your behalf. It is essential that you determine the long-term consequences of this approach. In some cases, the loan will be at a higher interest rate than what you are currently paying. Be sure to get all of the information before agreeing to this approach.
Also know that the consolidation company earns revenue from the fees that are paid each month.
Like I mentioned before, the FTC has determined that some debt management organizations have defrauded consumers. The FTC recommends that anyone using a debt management plan check their bills each month to make sure that the company is fulfilling all its promises. Anyone making payments through a consolidation company should contact all of the creditors to confirm that the plan has been accepted.
A creditor needs to accept the debt management plan before payments can be made. Not all creditors will accept the plan set forth by the debt management company. Once the creditors have accepted the plan, it is important to make regular, timely payments, as any missed payments can lead to all of your future payments being late, causing more financial hardship.
Be sure to read all monthly statements promptly to make sure all of the creditors are receiving payments according to your plan. It is essential that the consolidation company is responsible if a scheduled payment is unable to be paid or if any creditor is not receiving payment when you have paid the management company on time. If any payments to your debt management plan or creditors are not made prior to the due date, all of the progress made on paying down the debt could be lost.
Many states require that a debt management company obtain a license before offering any debt reduction services. Only establish a relationship with an organization that has fulfilled the legal requirements necessary. Get an itemized price quote in writing before signing anything. It is essential that you ask if all of the fees are covered in the quote.