Debt management services usually involve working with a credit counseling agency to create a debt management plan (DMP). The agency will work with the creditors on behalf of the client to negotiate lower interest rates and payments. The client then makes one monthly payment to the credit counseling agency, which distributes the funds to the creditors. Debt management plans typically last three to five years and can help people get out of debt faster and more efficiently than if they were to try to manage their debts on their own.

Common Creditor Concessions Under a DMP

• Interest rates are lowered or eliminated

• Accounts are re-aged

• Late and over-the-limit-fees are eliminated

How Much Does Debt Management Cost?

Debt management services can have varying costs depending on the provider and the type of service being offered. Nonprofit credit counseling agencies typically charge a small fee for their debt management plans, often ranging from $20 to $50 per month. For-profit debt management companies may charge higher fees, sometimes up to 10% to 15% of the total debt being managed.

The Downside of Debt Management

Debt management programs may seem like a viable solution to getting out of debt, but they often come with high fees and potentially negative impacts on your credit score. It's important to understand the risks and alternatives before enrolling in a debt management program. Here are some reasons why you should avoid debt management programs.

Debt management programs can be helpful for some people, but there are also potential downsides and reasons why someone might want to avoid them:

Fees: Debt management companies often charge fees for their services, which can add up over time. These fees may be a percentage of the total debt or a monthly fee, and they can vary widely depending on the company.

Impact on credit score: Entering a debt management program may have a negative impact on your credit score, as it can be seen as a sign that you are struggling to manage your debt. This can make it harder to obtain credit in the future.

Length of program: Debt management programs can take several years to complete, during which time you may be required to make regular payments to the company. This can be a significant commitment that may not be feasible for everyone.

Risk of fraud: Some debt management companies are fraudulent or engage in unethical practices, such as charging high fees or misrepresenting their services. It's important to thoroughly research any company before signing up for their services.

No guarantee of success: While debt management programs can be effective for some people, there is no guarantee that they will work for everyone. If you are struggling with debt, it's important to consider all of your options and choose the one that is best for your individual situation.

Debt Management vs Credit Counseling

Debt management and credit counseling are related concepts but they are not the same thing. Debt management is a service that helps people in debt by creating a plan to pay off their debts over time. Credit counseling services, on the other hand, focus on helping people learn how to manage their finances and debts. Credit counselors can provide guidance on budgeting, debt management, credit reports, and credit scores. They can also provide education on financial topics like investing and retirement planning. Credit counseling services are often available for free or at a low cost, and can be a great resource for people who are struggling to manage their finances.

Debt settlement

Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed. This option can be risky and may have a negative impact on the borrower's credit score. It's important to understand the risks and work with a reputable credit counselor when considering debt settlement. You can also settle debt and negotiate with creditors on your own, but this can be a daunting task. See our Debt Do-Over course for step-by-step deb relief training.

Debt Management vs Debt Consolidation

Debt consolidation and debt management are two different approaches to dealing with debt.Debt consolidation involves taking out a new loan to pay off multiple debts, such as credit cards or personal loans, leaving the borrower with a single, larger loan with a lower interest rate and more manageable payments. This approach can simplify debt repayment and potentially save the borrower money on interest charges over time.

Debt consolidation involves taking out a new loan to pay off multiple debts.

Debt management, on the other hand, involves working with a credit counseling agency to create a personalized plan for paying off debts. The agency negotiates with creditors to reduce interest rates and fees and consolidates the borrower's debts into a single monthly payment. This approach can also simplify debt repayment and potentially save the borrower money, but it does not involve taking out a new loan. Whether management or consolidation is best for you will depend on your specific financial situation and goals. It's important to carefully consider the advantages of each approach and make an informed decision.

Debt Relief Options Summary

Debt Management - while it is possible to manage debts on your own, debt management services can provide valuable assistance and support to those who are struggling with their debts. These companies have experience negotiating with creditors and can often achieve better outcomes than individuals who attempt to negotiate on their own.

Debt Consolidation - Debt consolidation is a method of combining multiple debts into one loan with a single monthly payment. While it may seem like an attractive option for simplifying debt payments, it should be approached with caution. Consolidation loans often come with high interest rates and fees, which can increase the overall cost of the debt.

Do it Yourself - Learn how to negotiate, settle, and cancel debt with professional training from The Credit Course. See our Debt Do-Over course to find debt relief at a fraction of the cost of debt management programs,