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Can A Debt Management Program Really Help To Reduce Debts?

Updated on July 17, 2008

A good debt management program is designed to help the individual in debt with a solution that is built for his or her own specific problems and needs to resolve it for the debtor uniquely.

The counselor’s job is to evaluate the person in debt’s financial situation, provide assistance and advice in developing their budget, and he will discuss and negotiate all terms of payment with the debtor’s creditors. The counselor is there to discuss forgoing late fees and getting interest rates lowered. A debt management program usually lessens the payoff time and gets the payments negotiated to a more manageable level.

Plus, gets the debtor’s payment s consolidated into a single monthly payment that is the unsecured debts. Usually, the debt management company takes the money as monthly deposit and then they parcel it out to their client’s creditors. They normally use an automated service to deduct the payment from the client’s account each month and then they pay the creditors. There are scenarios wherein they can re-age their client’s account and that can stop late fees from accumulating.

How does a person know if a debt management program can help his situation? To answer this question the debtor needs to consider these questions: Are the bills beyond a monthly total that can be paid easily? Are the interest rates keeping the balances up though the bills are paid? Does borrowing money to pay the bills seen like the answer? Does it seem impossible to catch up because of an unexpected bill like an emergency car repair or doctor bill? Is the minimum the only payment made each month on credit card bills?

When someone can answer positively to any of the above questions a debt management program is a good idea for them. One positive answer means that the others could soon follow suit and then the bad situation has gotten worse. The good news is that such a program can reduce payments each month by 25-50%.

Another huge warning sign that a consumer needs the help of debt management counseling is when he thinks of bankruptcy as his answer. If the consumer is considering bankruptcy he should bet some counseling first because he may be able to solve his financial problems without resorting to bankruptcy.

The debt management counselor can get the consumer get back in control and teach him how to stay in control of his debt. He can help him see what the warning signs are that say his financial train is about to derail. One tool that is used to see if a consumer has too much debt is a debt to income ratio. To see what the ratio is, the mortgage or rent is excluded from the figures. The monthly payments otherwise are totaled. That total is divided by the total monthly income and that figure is converted into a percentage.

This can be as a guide, when the percent is higher than 20 reducing the figure is in order. The bills besides the rent or mortgage shouldn’t be as high as 20%. This type of budget can sink the consumer’s ship. The consumer should ask his debt management program counselor about using this calculation as well as other advice to help him rid himself of excessive debt.

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    • profile imageAUTHOR

      captivereef 

      10 years ago from USA

      NOrmally companies that ask for a large upfront fee or try to get control of your money are the ones to steer clear of. One big scam bad companies pull is getting you to give them acess to your bank account with the intent of paying your settlements for you, but they usually wind up taking your money and running.

    • profile image

      Hi Tech Pharmaceuticals 

      10 years ago

      Are there debt management counselors that are scam artists? How do you tell the legit from the risky? Thanks!

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