The good, the bad and the ugly of debt management
Ready to make that debt disappear once and for all and you’re considering hiring a debt management company? Think of them as financial wizards armed with spreadsheets, ready to turn your debt mountain into a molehill—but choose wisely, as not all wizards are created equal.
What’s a debt management plan?
A debt management plan is like putting your unruly debts in time-out, all in one place, under the watchful eye of a third party—usually a credit counselor. This strategy is designed to give you a break from juggling multiple payments, offering the sweet relief of a lower interest rate and the promise of paying off your debt within five years. It’s like sending your debts to debt-finishing school: they return much better-behaved.
What are the benefits of a debt management plan?
Debt management is a popular solution for taming that wild beast known as debt. Many choose this path because a debt management plan has several perks. Think of it as sending your debt to a debt obedience school—it learns to sit, stay, and eventually roll over and disappear.
1. You’ll get professional help
Many people struggle to pay off their debt on their own because of two factors: lack of coaching and lack of accountability. Enter the debt management company, your financial personal trainer, and accountability buddy all rolled into one.
Look, not everyone’s a finance whiz. Don’t beat yourself up if money management isn’t your thing. Even if it is your thing, we can all benefit from a second opinion and a bit of structure. After all, LeBron James still has a basketball coach, and Patti LuPone still has a vocal coach.
Professional help helps us reach our goals. Investing in it is like giving your finances the MVP treatment.
2. Can cut interest rates by half
The biggest villain keeping people from paying off their debts? High interest rates. It’s like trying to fill a bathtub with the drain wide open. If you’re using methods like the Debt Snowball or the Debt Avalanche, those high rates can make it feel like you’re just spinning your wheels.
Enter debt management companies—the seasoned negotiators who can often (but not always) convince creditors to lower those pesky interest rates. With their expertise, you might find your net minimum monthly payments becoming more manageable. Think of them as your financial fairy godmother, waving a wand to turn those monstrous rates into something much more approachable.
3. Can expedite paying off debt
The combination of support, accountability, and lower interest rates can fast-track your journey to becoming debt-free. Many people stay stuck in debt because they lack support during tough times and can’t negotiate down those sky-high interest rates. It’s almost like the system is designed that way—because, well, it is.
By hiring a debt management company, you eliminate those roadblocks that make debt freedom feel like a distant dream. It’s like having a financial GPS that helps you avoid all the traffic jams and potholes on the road to debt-free living.
4. Consolidates debt into a single payment
Probably the best perk of working with a debt management company is the sweet relief of debt consolidation. Instead of juggling multiple payments, your debt management company will handle the disbursement of all your payments for you. It’s like having a financial butler.
What’s even nicer? These single payments can be set up to happen automatically through direct deposit or electronic funds transfer (EFT). This means you can take a step back and let the process run on autopilot. Psychologically, it feels like you’re paying off your debt faster because you’re not bogged down with writing checks or making monthly payments.
However, you’ll still want to monitor things to ensure they’re running smoothly. Think of the debt management company as your contractor and you as their client. It’s your money, so make sure they’re earning their keep.
5. Stop bill collectors calling
We can all benefit from fewer phone calls, especially the ones reminding us of things we’d rather forget—like unpaid debts. If one of your biggest frustrations with falling behind on payments is bill collectors calling you, then working with a debt management company can be a game-changer.
Now, under the FDCPA, you can always tell a debt collector to stop calling, and they’re legally required to stop. But, just because you can doesn’t always mean you should. If you’ve hired a debt management company and know your payments are being handled, simply tell any debt collector who calls that you’ve got a financial bodyguard now. Redirect them to your debt management company and let the pros handle the calls while you enjoy the peace and quiet.
6. May improve peace of mind
Ah, the blissful peace of mind that comes with having a plan—especially when that plan is actually working. When we sat down and mapped out our strategy to tackle a whopping $51,000 in credit card debt, it was like seeing a light at the end of a very dark financial tunnel. Sure, we knew we had some serious nose-to-the-grindstone years ahead, but just having a plan transformed our outlook on our debt and ourselves.
And after bringing in the big guns—aka, hiring a debt management company—you’ll get that same feeling of empowerment. Having a solid plan in place is like strapping on a financial superhero cape—it’s the first step in turning the tide against debt and reclaiming your financial freedom.
7. Eventually, you’ll become debt free
Alright, let’s talk about the grand prize, the pièce de résistance, the ultimate jackpot of hiring a debt management company: the glorious moment when you finally become debt-free.
Now, we’d say that’s a benefit you can’t put a price on—except, well, you totally can. If you’re at the point of enlisting help to tackle your debt, chances are you’re shelling out a small fortune each year in credit card interest payments.
We crunched the numbers and realized we were hemorrhaging $10,000 a year in interest payments alone. $10,000! Just think of the possibilities with an extra $10,000 a year—building up that emergency fund, diving into the stock market, maybe even dipping your toes into real estate or launching your dream business.
And let’s not forget about giving back to your community. It’s a heck of a lot more rewarding than lining the pockets of some faceless bank, right? So, yeah, finally kicking that debt to the curb? That’s not just a benefit, it’s the financial equivalent of winning the lottery.
What are the disadvantages of debt management?
With all the benefits of debt management and all good things, it has its drawbacks. Here are the most significant disadvantages of debt management.
1. Debt management doesn’t include all debt
Debt management tends to focus on the unsecured stuff, like credit card debt. You know, the kind of debt where there’s nothing but your reputation at stake.
But when it comes to secured debt, like your beloved car or cozy home loan, things get a tad trickier. There’s real skin in the game, folks—your wheels or your castle might just get snatched away if you start slacking on payments.
And let’s not forget those stubborn creditors who refuse to play nice with debt management programs. They’re like the cool kids at school who don’t need to follow the rules because, well, they’re already sitting at the cool table. When you signed on the dotted line, you pretty much agreed to play by their terms, whether you like it or not. It’s like a high-stakes game of financial chess, and sometimes, your creditors hold all the power moves.
2. You’ll be working with a middleman
The joys of outsourcing your financial woes to a third party is like having a personal trainer for your wallet. But here’s the kicker: with debt management comes the fun of handing over the reins (and your hard-earned cash) to someone else. Yep, you’re basically adding another player to your financial board game.
Sure, it’s nice to have someone else in your corner, cheering you on as you sprint towards debt freedom. But let’s not overlook the fact that you’re relinquishing a bit of control here. And speaking of control, buckle up because we’re diving into our next point.
3. You’ll have less control (though this will temporarily be a good thing)
Ah, the sweet surrender of control—it’s like admitting defeat in a game of financial Twister. But hey, if you’re even considering bringing in the cavalry (aka, a debt management company), chances are your grip on your credit hasn’t exactly been ironclad until now.
So, while you sit back and let the pros do their thing, negotiating flexible terms and conditions like financial wizards, remember this: they’re the puppet masters of your debt payoff plan. And as they pull the strings, your access to additional credit might just feel like it’s dancing out of reach.
Yep, it’s a bit like trying to wrangle a herd of unruly financial wild horses—there might be a few bumps in the road. But hey, at least you’ll have a great story to tell at the next family reunion, right?
4. There are often hidden fees
The next reason is like signing up for a roller coaster ride through your finances! Brace yourself for the initial plunge: you’ll typically dish out a setup fee ranging from $50 to $100, followed by a monthly fee that’ll have you saying goodbye to anywhere between $25 to $100 a month.
But fear not, dear financial adventurer! If the debt management company you choose is worth its weight in gold (or at least in dollar bills), it’ll save you more moolah in the long run than you’ll spend on those fees.
That said, let’s call a spade a spade: hiring a debt management company means whipping out your wallet and paying for the privilege. And just when you think you’ve reached the end of the financial roller coaster, some (not all!) debt management companies might hit you with a cheeky little fee to close your account. Whether you bail out midway or ride that coaster to debt-free victory, there’s always one more loop-de-loop to navigate.
5. You’ll likely have fewer breaks
Bringing in the big guns like attorneys and debt management companies can really ruffle some feathers in the creditor world. It’s like showing up to a thumb-wrestling match with a sledgehammer.
See, creditors aren’t exactly popping champagne when you bring in the cavalry. It throws a wrench in their finely tuned machine, making their job about as easy as herding cats. And if they’re feeling generous enough to negotiate, you can bet your bottom dollar they’ll be tightening the purse strings tighter than a pickle jar lid. After all, offering you a sweet deal means taking a hit to their bottom line—something they’re not exactly thrilled about.
So, while you might think you’re bringing in the heavy artillery, just remember: sometimes, it’s like trying to negotiate with a brick wall. But hey, at least you’ll have a good story to tell at the next family barbecue, right?
6. You’ll lose access to credit
Now, the fine print is where dreams of financial freedom meet the reality of closed credit cards and slammed doors on new lines of credit. It’s like trying to navigate a maze blindfolded, except with more paperwork and less cheese at the end!
So, buckle up, because here come the conditions: first, you might have to bid adieu to some (or all) of your trusty credit cards. And second, forget about adding any shiny new cards to your collection. It’s like being handed a “no new credit” badge and being told to wear it with pride.
But hey, there’s a method to this madness! See, their success is your success. They’re like the financial lifeguards, and they’re not about to let you drown in a sea of debt while they’re busy tossing you a lifeline. It’s a classic case of “no new debt, who dis?”—and trust me, it’s a win-win for everyone involved
7. It doesn’t address spending behavior
Let’s face it, most of us end up in debt because we’ve got champagne tastes on a beer budget, and our emergency savings account is about as empty as a Monday morning coffee pot.
And don’t even get me started on the ol’ personal loan shuffle—it’s like trying to put out a fire with gasoline! You take out a loan to squash that pesky credit card debt, only to find yourself knee-deep in plastic once again. It’s like a bad rerun of a sitcom, except this time, the laugh track is on you.
I’ll raise my hand as the poster child for this comedy of errors. We hired a debt management company, they did their thing like pros, and what did we do? We went ahead and treated our credit cards like VIP passes to the spending party. Surprise, surprise, we ended up right back where we started.
Lesson learned? Until we changed our ways, no amount of debt reduction plans were going to do diddly squat. So, here’s to a new script—and hopefully, fewer reruns.
Does debt management affect your credit score?
Credit scores are like trying to solve a Rubik’s Cube blindfolded while riding a unicycle! So, you’ve hired a debt management company and jumped on the debt management train. Sounds like a breeze, right? Well, not so fast!
While it won’t directly throw your credit score under the bus, having that debt management plan pop up on your credit report is like waving a red flag at future lenders, screaming, “Watch out, we’ve got a financial daredevil on our hands!”
And let’s not forget about the credit card conundrum—closing those accounts can send your credit utilization skyrocketing faster than a helium balloon at a birthday party. It’s like going from borrowing a cup of sugar from your neighbor to asking for the entire cake!
Ah, credit utilization—where the size of your credit line feels like it’s playing a game of “who’s the boss” with your credit score. And as for closing those credit cards? Well, your credit history might not feel the pinch right away, but trust me, it’s lurking in the shadows, waiting to make its grand entrance when you least expect it. So, buckle up and hold onto your hats—it’s gonna be a bumpy ride.
When would I consider debt management?
Not everyone should consider a debt management plan. In some cases, it doesn’t make sense or isn’t appropriate. If you’re considering a debt management plan, meet these three benchmarks.
1. Unsecured debt is over 15%
You’re considering bringing in the big guns—aka, a debt management company—but before you take the plunge, let’s talk numbers. If your unsecured debt, like those pesky credit card balances, is gobbling up more than 15% of your annual income, then hey, it might be time to roll out the red carpet for the debt management crew.
But hold on, tiger! If your debt is lounging comfortably below that 15% mark, there’s hope yet! You might be able to tackle it solo, armed with a simple strategy and a hefty dose of self-control. Yep, you heard me right—no capes or fancy gadgets required.
You’ve got this!
2. You have a job
The harsh truth—we’re talking cold, hard cash here, folks! If you’re thinking of bringing in the debt management cavalry, it’s probably a good idea to have a little something called a job. After all, last time I checked, even Batman had to pay the bills.
Now, let’s get real for a sec. Most of us aren’t drowning in debt because we’re pulling in pocket change; our spending habits are about as disciplined as a toddler in a candy store. But hey, if you’re in the rare camp of folks who can’t seem to land a gig, a debt management plan might not be your saving grace. After all, if the cash flow isn’t flowing, how’s a plan supposed to work its magic?
So, before you go diving headfirst into the world of debt management, do yourself a favor and make sure you’ve got that paycheck on lock. Because last I heard, even Superman needs to pay rent
3. You won’t need more credit lines soon
When it comes to your debt management plan, brace yourself for a few hurdles. You might find yourself waving goodbye to those tempting lines of credit faster than you can say, “Charge it!”
So, before you go all in, ask yourself this: are you ready to bid adieu to the land of plastic? Because once you’re in, there’s no turning back. It’s like trying to resist that second slice of cake at a birthday party—it’s gonna take some serious willpower!
Now, let’s tackle the age-old question: non-profit vs. for-profit debt management companies. Think of it like choosing between a sugar-coated doughnut and a whole wheat bagel—they both have their perks, but at the end of the day, they’re both in the business of making dough (pun intended!).
So, whether you’re dealing with the Robin Hood of debt management or the corporate giant, remember one thing: it’s a business transaction, plain and simple. Read that fine print, understand your responsibilities, and for goodness sake, know that even the most saintly debt management company still needs to make a buck.
What alternatives are there to debt management?
A debt management plan isn’t the only game in town for paying off debt. You have a few alternatives.
1. A debt settlement
Debt settlement is the financial equivalent of haggling at a flea market! Picture this: you owe a hefty sum, but instead of shelling out the total amount, you whip out your best negotiation skills and offer up a chunky lump-sum payment. And guess what? You might just snag a sweet deal, slashing that debt by up to 50% like a bargain-hunting pro!
Now, here’s where the plot thickens. Instead of rolling up your sleeves and diving into the negotiation, ring yourself, enlist a third party’s help or—cue dramatic music—an attorney to do the heavy lifting for you. It’s like bringing in the big guns to negotiate your way out of debtville!
So, next time you find yourself drowning in debt, don’t despair—just channel your inner bargain hunter and get ready to wheel and deal your way to financial freedom!
Click here for more information on debt settlements.
2. Filing bankruptcy
Ah, bankruptcy—the financial equivalent of hitting the reset button on life’s Monopoly game! Picture this: you find yourself drowning in debt, buried under a mountain of bills taller than Mount Everest. So, what’s a savvy spender to do? File for bankruptcy, of course.
It’s like pulling out the big guns and heading straight to the federal courthouse, armed with nothing but your financial woes and a dream of wiping the slate clean. Think of it as your personal “get out of debt free” card—a chance to hit rewind and start over if life’s handed you a raw deal.
So, next time you feel stuck in a financial game of Jenga, just remember: bankruptcy might just be the secret weapon you need to stack the odds back in your favor.
Click here to learn more about filing for bankruptcy.
3. Signing up for the Debt Free Guys’ Credit Card Debt Slasher
Introducing the Credit Card Pay Debt Slasher—sounds like something straight out of a superhero comic, doesn’t it? Picture this: it’s the ultimate weapon in the battle against credit card debt, promising to slash through those balances faster than a ninja slicing through butter. Plus, it’s like a magic potion for your bank account, saving you more moolah than all those other debt-killing methods combined.
But wait, there’s more! Not only does it promise to send your debt packing, but it also pledges to catapult your credit score into the stratosphere—think superhero status with a credit score over 750.
And here’s the best part: all this financial wizardry comes at a fraction of the cost of those other fancy-schmancy methods we’ve discussed. It’s like getting a Lamborghini for the price of a scooter—only with a lot less wind in your hair and a lot more digits in your bank account.
Click here to learn more about the Credit Card Debt Slasher.
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