Debt Management Services

Debt management services are advertising heavily at the current time and much of this is due to the current economy. The first of the year is also a big time for these companies as people set goals for the new year. The question is, are these services for you? Can they help you or are they in it for the money. Not all debt management services are the same and the decision to use any kind of service should be evaluated carefully.

Some of these service offer debt consolidation in the form of a loan and this is probably the worst option for consolidating your debt. If the loan is secured, you will be using your home as collateral. This essentially puts your home at risk for foreclosure if you cannot make your payments. If the loan is not secured, you will be looking at a high interest rate and the amount most likely will not be enough to cover your debt completely. The worst thing about a debt consolidation loan is it makes the line of credit on your cards available again and most people begin using it again. Now they have a loan and credit card debt.

Debt settlement is another option that is sometimes marketed through a company that calls themselves a debt management service. These companies used to have a lot of high upfront fees and confusing fee schedules associated with their debt negotiation services. No matter how you look at it, you are paying a company to do for you what you can do for yourself. If you are trying to get out of debt, paying someone to do something that you can do on your own isn’t very smart. These services negotiate the reduction of the balance that is owed on your credit card account.

Debt settlement can save you a lot of money, but there is nothing pretty about it. You may only have to pay half or even less than that on what the total account balance is, but this will affect your credit negatively. You will also be accessed income tax on the amount of the debt that is forgiven. Many times this will not become an option until your lender has not received a payment for 3 to 6 months. Sometimes they will sue you for the money before they will talk about settlement, but they will usually agree to settle before going to court. Settlement is not a long term payment option. Your lenders will want payment as soon as possible and will not probably agree to a settlement, if payment cannot be made in three months or less.

Credit counseling is the most common option offered by debt management services. This is a consolidation of consumer debt that is not a loan. You will make one payment each month to the debt management company and they will disburse it to your lenders. Your collection calls will stop and your lenders will deal directly with your debt management service. The interest rates on your accounts will be reduced significantly allowing a large part of your payment to go directly to the principle amount of your balances. This will save you a lot of time and money when it comes to repaying your debt.

This is a credit friendly option that can have you out of debt in 3 to 5 years if you follow the plan as it is written. Debt management services can help you get out of debt if you are feeling overwhelmed, but you need to understand what you are getting into. Not all debt management services are the same.