5 Tips for Succeeding with a Debt Management Company

Wouldn’t it be nice if there was a magical way to pay off your debts and gain financial independence? Unfortunately, there won’t be any magic involved because no one is going to swoop in and make your debt disappear, but there is a solution.

There’s an option called a Debt Management Plan (DMP), which can save you from bankruptcy. Whether you have mounting medical bills or were an irresponsible shopper, if you can’t afford to repay your debts and have considered bankruptcy more than once, help from a debt management company could be closer than you think, once you know where to look.

But before we jump into finding you the best debt management company, let’s discuss what these companies do. It’s actually quite simple: they create a workable plan so you can manage your money and get out of debt. Here’s how they do it:

• The debt management company signs you up for a DMP, bringing all your financial obligations (e.g. unsecured debt and credit card accounts) under one roof for easier management.
• Shortly before your first payments are due to your creditors, your debt management company sends proposals to your creditors, requesting special benefits to help you repay your debt as long as you make regular and timely payments. Benefits may include lower interest rates, waived late and over-the-limit fees, and reduced monthly payments.
• You make a single monthly payment to the debt management company, which uses those funds to pay your creditors on your behalf.
• Generally, after you have made three consecutive payments, your creditors will extend benefits through the DMP.
• You continue making payments on your DMP – often at a reduced amount secured by your debt management company.
• Finally, you make your last payment at the end of your DMP and smile because you have paid off your debt in full.

Tips to Success

Now that you know what debt management companies can do for you and your wallet, let’s identify how to find the best debt management companies that have the expertise you need. Here are some tips:

Tip #1: Find a proven partner.

Finding the best debt management company takes work, but you can quickly narrow down your search with a few qualifications. For example, consider only those companies that have at least three to five years of experience serving consumers like you, and that have clean records with the Better Business Bureau. Shop around, comparing service offerings and fee structures. Use our Provider Checklist to compare the CareOne^SM service with other services. Your goal is to figure out which debt management company can provide you the best plan for the best fee. Any reputable company should also offer support through a network of consumers who are struggling with debt like you are, and certified counselors who can steer you toward robust educational resources to build your money management skills.

Tip #2: Set realistic expectations.

Setting realistic expectations is important for both: 1) accepting how long it will take to pay off your debt and 2) getting comfortable with a monthly payment amount you can afford without fail. Let’s address the first issue. You need to be patient because most DMPs take about 60 months to complete. The average payoff time is 25 years for a consumer who doesn’t enroll in such a plan, so stick with it. Second, creditors expect payment every 30 days. Fail to establish a payment amount you can afford at the onset of your DMP and you may find yourself unable to make a payment six months into your plan. If that happens, you can forget about any benefits your debt management company acquired for you. Therefore, select a lower amount that you know you can afford and simply increase your payment amount when you have extra cash.

Tip #3: Review before you sign.

Once you’re satisfied that your debt management company has given you the right DMP that includes all of your eligible debts and doesn’t force you into a one-solution-fits-all option, review your agreement carefully. Pay close attention to your plan’s fee structure, timelines, and requirements (e.g. you likely can’t assume new debt). After you sign the agreement, keep a copy of your plan in a safe, secure place in case you need to reference it again.

Tip #4: Maintain communication.

Once you sign up for a DMP, contact your creditors and request that they adjust your due date to come after when your payment is due to your debt management company so you can avoid any late fees. Privacy issues restrict debt management companies from making these requests. Also, communicate with your debt counselor when any of your accounts have been paid in full, and make sure their statements and your creditors’ statements match, addressing discrepancies immediately.

Tip #5: Monitor your performance.

Finally, most creditors offer 24-hour account access, online or by phone, so use these capabilities to reconcile your balances. Set a date and time in your calendar to review your statements each month.

Also, if you start to struggle or doubt your ability to succeed on your DMP, remember the basic concepts of managing debt, including budgeting your expenses, paying with cash, avoiding unnecessary purchases, and looking for ways to boost your income– perhaps by getting a second job.

An Achievable Solution

Again, a DMP isn’t a magic pill you can take to solve your financial problems overnight. It takes a strong commitment and tenacity to find the best debt management company and stick to the plan. Then, when you’ve completed your DMP, you can move forward and manage your finances on your own, armed with the knowledge gained through this process. Hard work now, yields a happier wallet later. 

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