Not all credit counselling services require people to join a debt management programme, and not all people who need credit counselling also need a debt management programme.
A debt management programme helps people deal with the debt they already have. Qualified credit counsellors will look at your debt and income, talk to you about ways to get out of debt, and talk to you about the pros and cons of a debt management programme.
If a debt management programme is the right choice for you, the credit counsellor will set up a payment plan with each of your unsecured creditors to try to lower the total amount you owe, lower your interest rates, and get over-the-limit and late fees removed from your accounts while you are in the programme.
How programmes to deal with debt work
When you join a debt management programme, you will start sending a monthly payment to the credit counselling agency. The agency then takes those deposits and uses them to pay your student loans, credit cards, medical bills, and other unsecured debts according to the payment plan that your credit counsellor worked out with your creditors.
Get the terms of the debt management programme in writing, and then ask each creditor if they really do offer the concessions that the credit counsellor said they would.
Debt management plans that work well can help you pay off your debt in two years or more. Your credit counsellor should be able to give you an estimate of how long it will take you to pay off each of your debts, and it's likely that you won't be able to apply for or use any other credit while you're in the programme.
Before you join a debt management programme, there are some questions you should ask.
Before you sign a contract or commit to a debt management programme, you should ask more questions to figure out if it's the best choice for you.
If a credit counselling agency's only service is to help you manage your debt, you might want to look for another credit counselling programme that can also help you make a budget and manage your money.
Ask how the amount of the monthly payment is set. If the payment for debt management is more than what you can pay each month, you won't get anywhere with the programme. Make sure that the monthly payment is low enough that you can pay it on time every month before it's due.
Find out how the payments to creditors are made by the debt management programme. Will it be before the due date and during the billing cycle? Do they pay their debts every month, or are they on a different schedule? How does their schedule for making payments affect your debt?
Do you have any debts that can't be paid off through the debt management programme? Find out why, and make sure you can pay that bill on your own while still making the monthly payment that the debt management plan suggests.
Ask the credit counsellor how the debt management programme will affect your credit score. They are wrong if they say they can get bad things off your credit report. Legally, you can only get rid of wrong negative marks on your credit report before the seven years are up.
Make sure the programme you're thinking about is a debt management programme and not a debt negotiation plan. These are two very different ways to handle debt, and a debt negotiation plan can hurt your credit report for a long time.
