Consumer debt in the US is approaching all time highs and many are seeking debt counseling services. While debt counseling can give you relief and lighten your debt management woes, it is vital to choose the right debt counseling agency. Read our guide for prudent debt management. Equip yourself to seek debt relief from the right agencies so that you are not gypped by exorbitant fees.
Consumer debt counseling
Check whether the consumer debt counseling agency is a member of the respected networks such as NFCC – National Foundation for Credit Counseling or AICCCA – Association of Independent Consumer Credit Counseling Agencies. The 1990s saw the domination of the NFCC affiliates but since then the number of consumer credit counseling services have been on the increase. There is no federal regulation of consumer debt counseling services. About 17 states in the US have specific regulations that oversee debt counseling.
- A good consumer debt counseling agency not only offers services to get you out of your current debts but also offers pointers to avoiding similar pitfalls in future.
- Credit counseling also encompasses services such as negotiation with lenders for lower payments, dropping late fees and debt consolidation.
- Availing consumer debt counseling will not adversely affect your credit rating most of the time. While some lenders view it as a positive sign of getting your debt under control, others may avoid those who have enrolled in debt counseling management.
- Avoid consumer debt relief and counseling agencies that solicit you. Avoid divulging too much financial information till you check the consumer debt management agency you are dealing with. Once you have signed up with a debt counseling service, provide them with a comprehensive list of all your debts and the lenders.
- Do not pay up huge upfront fees for debt relief and counseling.
Critics of the credit counseling services bring to light that many of the agencies are paid by the lenders themselves. This sparks off the debate that the debt relief measures are also fueled by the lending industry.
What are the signs that you are in need of debt help?
1. You have overspent on your credit cards till their limit.
2. You are using cash advances from one credit card to pay off an another.
3. You are paying the minimum on each of the credit cards
4. You are spending more on credit cards than what you earn
A typical debt management program works much like a debt consolidation service. You write out a monthly check to the debt management agency and they pay all your creditors. A consumer can avail reduced interest rates and lower monthly payments when he registers with a debt management program. Do not sign up for dubious debt management schemes wherein you cough up a month’s payment to creditors as well as hefty fees.
With disreputable debt management companies, you may land up owing more with their services that you did before they started helping you. Some states have licensing requirements for debt management companies. The AICCCA caps enrollment fees for debt-management plans at $75. Monthly service fees are capped at $50. Debt management agencies affiliated to the NFCC charge an average enrolment fee of $19 and monthly service charges of around $12 that have signed up for debt management programs. A debt management plan must be geared towards paying off your debt.
It must seek to systematically pay down the outstanding debt through your monthly payments. A typical debt management program may last anywhere from 3 – 5 years. If you do not avail debt help, you can work with your creditors and work out an amicable way to honoring your debt obligations. Maintain records of all transactions with creditors. This can be valuable proof in case there are non-payment disputes later. You can pay your dues by checks, credit cards, online payments, cash or automatic drafts. Some creditors reduce interest rates slightly for those consumers paying by automatic drafts.
Debt reduction is the first step to get you out of an impending debt trap. A few simple steps can help you cut down your existing debt and reduce your obligations. The golden rule when reducing debt is to stop incurring more debt. Then get a plan in place to pay off your existing dues on time. Late payments can wreak havoc on your financial health. You can enlist the support of a debt management agency to work out a debt consolidation strategy.
- Reduce insurance and investment expenditure
- Shop around for the best deals while shopping
- Work out direct debit payments so that you spend less on credit
- Junk some credit cards so that you are not tempted to use them
- Work out a favorable debt consolidation strategy and stick to it
- Pay bills that are more important than others
- Refinancing is yet another method debt management. Save money by availing lower interest rates.
- Making full payments on the credit card debt whenever possible is prudent debt management.
Debt consolidation strategy
Debt consolidation program is one way of keeping bankruptcy at bay. You can probably work out a repayment schedule for all debt obligations at a reduced rate. A debt consolidation strategy can save you the bother of paying individual creditors. You can make just one monthly payment to the debt management agency, which will take care of paying off your various creditors. Pay off bills with higher rates first so that it brings down your finance charges. You can reposition current assets to pay off debts. You can prioritize payments on the bills that have fewest remaining payments.