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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

Means to Reducing Debt

When you are in over your head due to excessive spending, layoffs or reduced incomes, debt relief is a necessity.  A debt relief plan is simply a means by which your debt is reduced, forgiven or paid off over time. 

Common debt relief measures are:

  • Bankruptcy
  • Debt consolidation loans
  • Debt management plan
  • Debt settlement

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Debt Management Plan Key Details

With a debt management plan, you select a credit counselor to work with your creditors to help reduce your monthly payments on unsecured debt. Unsecured debt consists of medical bills, student loans and credit cards. Debt management plans will not help with mortgages and car loans.

get debt relief

The debt management plan is a program in which you or a credit counselor negotiates lower interest rates and reduced or waived late fees with your creditors. An affordable monthly payment is agreed upon so that you can pay off your unsecured debt.

If you use a company for your debt management plan, you make monthly payments to your credit counseling company. They pay your creditors for you. Providing you continue with your program and make timely payments, you can be out of debt in three to five years.

When you set up your own debt management plan, you continue making payments to your creditors every month. Just make sure you are submitting payments on time.

Handling Debt Relief Alone

It is possible to create your own debt management plan. Start by writing out a list of your household’s monthly income and all of your monthly bills. Don’t forget to calculate your grocery costs, heating costs and automotive requirements like gasoline and general maintenance. Creating a budget is your most important step.

Once you have a grasp of how much money you have left over for unsecured debt payments, contact your creditors. Explain your situation and ask them to offer you a lower interest rate or waive late fees while you pay off what you owe them. Do what it takes to get them to agree to help you out, even if it means asking to speak to a supervisor.

Keep an even temper. Getting angry is not likely to get you what you want.

With many companies, entering into an agreement involves your guarantee that you will make payments on time. Once you’ve received a suitable offer, make sure you are always making payments when they are due, if not earlier. Failure to pay on time is a guarantee that they will raise rates and reinstate the costly fees.

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Pros and Cons to Credit Counselors

Paying off your debt by yourself is a great feeling. It does require a lot of budgeting and careful planning. You need to stick to a strict schedule and remember to submit payments on time without fail.

Many people fall into the same trap. Unless they enroll in a program that teaches them how to live on a budget, they are unlikely to succeed in remaining debt free. It’s important for a person setting up their own debt management plan to request free educational information on budgeting their money.

Credit counseling programs should offer workshops or classes in keeping debt free. Nonetheless, there are many scams out there. Hiring a credit counselor can be risky, so you must be careful.

Expect to pay a monthly fee to your credit counseling firm. While they may offer a complimentary consultation, their services are never free once you’ve signed the contract. Some charge a percentage of your total amount of debt, others may charge you $50 or more a month in fees.

Choosing a Credit Counselor

Many of those who are in debt are uncomfortable negotiating with their creditors. For those, a credit counselor is an excellent option.

Look for credit counselors who offer in-person appointments. It is possible to set up a plan over the phone or Internet, but there are many scam artists out there. It’s always best to be cautious.

Look for credit counselors who meet certain criteria. Never agree to a credit counselor’s services until you’ve seen a copy of their contract and understand fees. Ask if they offer workshops in financial planning to help you improve your fiscal responsibility. Any good credit counselor includes free educational materials in their program. Also, look for certification and licensing to verify they can legally work in your state.

Credit counselors are skilled professionals who can help you choose the best plan to pay off your debt. Always check for complaints against companies at the Better Business Bureau or with your state’s Attorney General.

Debt Management Plan Companies

American Consumer Credit Counseling
Auburndale, MA

Balance Financial Fitnes
San Francisco, CA

CareOne Credit
Columbia, MD

Christian Debt Consolidators
Deerfield Beach, FL

Consumer Credit Counseling
St. Louis, MO

Consumer Debt SolutionsInc.
Coral Gables, FL

Consumer’s Alliance Processing Corporation
Carlsbad, CA

Debt Consolidation Care
Carson City, NV

Heritage Debt Relief
Dripping Springs, TX

Money Management International
Houston, TX

Private Debt Solutions
Scottsdale, AZ

Take Charge America
Phoenix, AZ