Hiring a Debt Management Service

Do you feel like you can’t keep paying all your bills on time?  Are you “over your head,” spending more each month on bills then what you take in?  Well, you might be a good candidate for a debt management service, a program usually available through a credit counselor.

What exactly is debt management?

A debt management program, or debt management service, basically acts as a middle man between you and your creditors, the people you owe money to.  Instead of paying numerous different creditors every month, you would instead send one big payment into the debt management company and they pay your creditors on your behalf.  They do this for a small commission, usually a percentage of your monthly payment.

Debt management is normally only good for unsecured debts, like credit cards.  If you have debts like home mortgages or car loans, debt management may not provide you with much benefit.

What effect does debt management have on my credit?

One of the benefits of debt management programs is that they may be able to reduce some of your unsecured debts’ interest rates and/or balances.  However, this will most likely have a negative effect on your credit report as it will show future creditors that you are a higher risk.  To keep it into perspective though, debt management programs normally have a far less negative impact on your credit when compared to a long history of late and missed payment if you choose not to enter a debt management program.

Profit vs. Non-Profit Debt Management Services

When many private, for-profit debt management services started appearing in large numbers in the late nineties and early 2000s to market to those in debt, many financial professionals advised people to obtain help from nonprofit debt management companies.  The logic behind that is that those offering for-profit services charged larger commission rates than those non-profit companies.

Unfortunately, this is no longer the case.  Many very much for-profit companies now call themselves “non-profit” — nothing more than a marketing term.  There is a huge different than a charitable organization and those that claim to operate as a “non-profit.”  So, before you go shopping around for a debt management company, know that non-profit doesn’t necessarily mean cheaper and better intended.