What is the first thing come to your mind when you are struggling for debts settlement? Some might think of debt management company as they offer attractive promises in assisting you to settle the debts in a reduced amount. What do you understand of debt management and how does it work?
Debt management is a form of debt consolidation. Basically it pile and sum up all your debts into one lump sum and by getting an agreement with your credit on the repayment term, a default payment will be set up to pay your bills. You can either negotiate the repayment term with your creditors yourself or you could hire the assistance from a 3rd party services. Normally, the debt collectors will accept lower monthly payments only if you can repay clear off the debts. However, some creditors might not accept this plan and to file a lawsuit against you. The drawback of this management is this type of plan is an informal arrangement between you and your creditors and they have no obligation to accept this plan, so in other words, this plan may not work at all.
Have you ever think of the cost of hiring a 3rd party service? How much do you need to incur to hire a debt management professional? Typically, this type of company will need you to pay an upfront fee in order for them to assist you with the plan and to call your creditors. On every month payment to your creditors, they may retire a certain percentage for their management fees. So, basically, you still owe the same amount of debts with your creditors and at the same time, you are incurring an extra cost to repay your debts! Does this sound a nice helping to you? If things come to the worst, you might sink in deeper debts without any sign! So, if you want to choose the service from a debt consolidation company, make sure you understand the outgoing of your money, how does it flow, who gets the money and how much you have paid and how much is the balance if debts. One more thing to note here, since this is an informal arrangement, your creditors might pull out of this plan and, what will happen next?
Debt management is a type of debt solution, however, at the same time, you will earn a bad credit ratings. You will face difficulty in applying for new credit cards or even applying for loan in future. In conclusion, a systematic plan is essential in settling you debts, and before you sign up with debt management company, think twice!