Category: <span>Debt Management</span>

With the fiscal times we are in; it seems that daily you are seeing more and more advertisements for debt consolidation. Whether it be through TV advertisements or ads on your favorite websites. That is great if you are in debt but you maybe wondering what is Debt consolidation and how does it work.

In the beginning I must give you a few words of notice. If you do make your mind up to use a debt consolidation company you will need to do some research. Not all the companies out there have your best interest at heart. At the end of this article I will give you the information you need to avoid the scams.

Now to satisfy the beginning; what is debt consolidation? Debt consolidation in its simplest form is basically taking all of your debt and combining them into one monthly payment. How this is achieved varies by company. The largest perpetrated way of doing this is by having you ( the consumer) take a home equity loan and paying all of your debts off from that plus their often not so reasonable fee. This is not necessarily bad; but with the way mortgages and credit is going today it is getting harder to gain these loans. Especially if you are already in debt then your credit may not be at it’s best. The next method that many companies use is to negotiate with your creditors to settle your debt a lower rate ( usually by manipulating you interest rate).

Usually they make money twice in these instances. First from you and second from the companies they “negotiate” with because most of the larger companies have contracts with the largest creditors to earn a commission on the debts they help collect. Sounds like a collection agency that you are paying to collect from you.

Now not all debt consolidators are out to rip you off. Many of the companies that you can get in touch with through your local consumer associations will have your best interest at heart. Additionally; many of these organization are either non-profits or not for profits. Additionally; you can go the route of doing it yourself. It is a little tedious but not overly difficult to accomplish. If you are reallyshort of money this may be the best way for you to go. As it will not cost you any additional money other than what you can negotiate for yourself.

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Would you pay someone to do something you could easily do yourself? Sounds like an easy question to answer doesn’t it? Why would you knowingly give money to someone to perform a task that can easily be done yourself? Your motivation for doing so might come from the belief that you are paying for a service, that the company you are paying the money to know something more than you don’t and there expertise is the justification for paying them in the first place.

In the case of Debt Management plans you will find there are two types of companies. The first instance, and tragically the most common type of debt management companies are those who I call ‘forwarders’. In short all they do is the following. You pay them all you can afford each month. They take 17.5% as a management fee and forward the rest pro rata to your creditors. You receive a payment a statement each month saying who has been paid and how hopefully a balance. Now, what are you paying that 17.5$ towards? Could you not do it yourself with a calculator and a book of stamps? Ask yourself, what are they doing? Debt Management are easy money and there are people who are millionaires through simply forwarding your money to creditors.

These companies are run by class A assholes. I have worked for them. They do not care about you or your situation, they care about the 17.5% commission you give them each month. They do not invest money in staff development and employ people who will simply open letters and update a computer system. I have seen this in action. They do not take notice of the fact balances are increasing or correctly log that a debt has passed out to a collection agency. They will seldom contact your creditors or you unless they have a reason to you (like you have threatened to leave). In short, they do nothing that will help you get out of debt. Companies like this are passive in nature in that they let everything come to them.

Then there are the few companies however who will help do everything for you. I know this because I have worked for them also. These companies will do everything to help you and actively contact creditors to resolve your financial situation. Your fee is being spent on a more ‘active’ approach and it does work. Key to a Debt Management plan is the relationship your debt management company has with creditors. Good debt management companies will have a dedicated creditor liaison department who will proactively be contacting your creditors to get arrangements in place and resolve any issues with your finances.

Good debt management companies are a rare breed. If you are considering a debt management plan here are a few tips to help you:

Ask what training the staff at the company have had and perhaps ask a test question such as ‘How after are your staff given refresher training on current collection procedures’. If the answer is anything like ‘No’ simply avoid.

Ask if how many cases are assigned to each administrator. A good amount is about 300 cases per administrator. Anymore and you may not get a good personal service.

Find out if the company has a creditor liaison department. If not, avoid they are not going to help you.

Don’t pay anything until you have spoken to at least three companies.

This is going to be the first post in a series about Debt Management plans and will be updated over the coming weeks.…