Alongside the ongoing collapse of the American economy, with lender after lender filing for bankruptcy protection and real estate markets crumbling at the nation’s feet, there is, at least, one industry that continues to rise in both popularity and productivity. Yes, our debt management firms have shown exponential growth over the last few years, and, with the larger financial picture unlikely to change any time soon, consumers shall continue to flock to every company that promises a reduction of payments and interest rates for the debts that accumulated back in the good old days. You are, we’re sure, at least familiar with the notion of debt management.
From billboards to television commercials to soft-sell magazine articles highlighting the various approaches, debt management has become a buzz word for all segments of the economy whether or not you’re trying to get out of a negative equity residence or simply trying to erase a few thousand dollars of credit card debt whose minimum payments you can no longer maintain. In the greater sense, for most borrowers, undertaking the process of debt management will be to your advantage regardless of the path you choose. While there are obvious drawbacks to Consumer Credit Counseling (FICO score wreckage resembling that of Chapter 7 bankruptcies) and home equity debt consolidation (incredibly dangerous in a time of tumbling property values), there remains a number of debt management forms – debt settlement negotiation, which can reduce borrowers’ balances by as much as fifty percent with a few phone calls for relatively low cost to the pocketbook or credit report, chief among them – that have demonstrable value to even the most dubious debtor.
Of course, at the same point, for every good and legitimate debt management firm, there are others who are simply out to make the fast buck regardless of their client’s well being. In this article, we would like purely to highlight some of the more egregious complaints our correspondents have reported when attempting debt consolidation with the hope that you would be able to sniff out a malfeasant business and select one that truly has you and your family’s best interests in heart. Obviously, there is a good deal more investigation that needs to be done well before you even meet with a specific company.
Considering all of the different approaches to debt management available, you have to make sure that you have a full and complete grasp of each one, from debt settlement to Consumer Credit Counseling and beyond, before even looking at the different possibilities in your area – or, these days, on the internet. Ask yourself: is it possible to pay off your credit cards and unsecured loans through traditional means in a reasonable amount of time? How important will your credit rating be to your plans over the near future? Do you plan to buy a house or refinance your current residence in the next few years? Do you want (or, even, need) to maintain some lines of credit available during the process of debt management? These are questions for another essay, we shan’t possibly have the space to outline every potentiality (nor, obviously, could we pretend to know your own specific financial scenario), but you can do so much of this sort of fact finding with just a little bit of research about debt management and all that the programs entail.
Still, once you have decided upon a specific approach to follow, there are a number of warning signs to look out for when selecting your debt management company, and we would merely like to delve into a few of these threats. For one instance, you should always ensure that whichever firm you have considered working with requires all of the following data before they offer any sort of estimate: identity of each lender, the interest rates of each accounts, minimum (and, under unusual circumstances, maximum) payments requested from each lender, past and current late payments as noted (or about to be noted) upon your credit report, and, as well, any significant account activity which may include balance transfers or relatively greater purchases in recent years. If the company happily provides a quote without such information, this should seem highly suspicious to the borrower.
Even after a cursory analysis of the household’s financial information, legitimate debt management companies should be loathe to give much more than the vaguest of quotes – certainly not a complete good faith estimate – and, whenever businesses blithely pretend to know how much their services will cost before looking closely at all possible difficulties – red flags should dance before borrowers’ eyes. By all means, if the debt management professional begins to talk about your eventual payments and what they would hope the interest rates would be during the initial consultation, feel free to gather your paperwork and walk away.
At the same point, of course, while it is necessary to offer this information to your prospective debt management company during the application process, one shouldn’t just hand out your most personal financial data before making absolutely certain that the company is one to be trusted. Even beyond the question of honesty – as happens, many debt management companies will share such information with bill collectors and predatory credit card companies all too ready to shove near fraudulent balance transfer offers down the debtors’ metaphorical throats – there’s a separate issue of experience and competence.
Your authors have known overworked debt management companies that simply threw out their past files into recycling bins outside the office! In this era of widespread identity theft, keeping such information private couldn’t be of more grave seriousness, and you simply have to make sure that your social security number and similar data will be properly disposed of. In fact, you should have the debt management professional you consult with give you assurances in writing about their organizational guidelines regarding the destruction and confidentiality policies regarding client documents before handing anything over. For obvious reasons, your debt management partners will need to trade this information with the lenders that they will need to deal with over the course of debt negotiation, but representatives of those credit card companies should be the ONLY ones to be given access to such incredibly sensitive data.
Also, on the topic of documents, prior to giving the debt management company your paperwork – or, considering the FICO score’s reduced every time your credit report is checked, even your social security number – do try to ascertain some notion of their best guess, however vague, as to the costs expected. Once again, the more legitimate companies shall be far more reticent to provide any sort of estimate without detailed analysis of your accounts, but, if you give a close idea of the amounts of the balances as well as your FICO score from each of the three main bureaus, they should at least be willing to come to some theoretical notion of the potential expense. Much can be learned from the charge requested for the initial consultation with the debt management counselor.
While it shouldn’t be seen as odd for some negligible fee to be attached to the first meeting – expect something around twenty five to seventy five dollars unless the loan balances under contention are truly gargantuan – anything beyond a hundred dollars should be seen as a warning sign. As we continue to remind, you should also make sure to have written documentation detailing precisely what you will receive for this fee, and you should ask whether or not there will be further charges for enrollment or admittance or seemingly superfluous fees. Any debt management company that has several charges for essentially the same task will not stop there, after all. If you fall for these charges, lord only knows what they might try next. Furthermore, while that initial payment may be necessary up front (if they didn’t charge anything, debt management companies would be besieged by skinflints pressing they for advice or information free of charge), additional fees asked by the company should be able to be built into the debt consolidation process so that you would never have to pay one lump sum all at once.
Speaking of the payment terms, they (it should go without saying) depend almost completely upon both the total amount of the credit card balances and the specific debt management approach that you end up selecting. The approach really does matter. Debt settlement rarely allows borrowers to maintain payment schedules lasting longer than five years while home equity loans can continue racking up compound interest for decades and Consumer Credit Counseling, as with so many things, remains eternally malleable to the borrower’s demands. However, you should be able to figure out what the debt management company costs will be each month before agreeing to their program. Obviously, you have to expect that their will be some sort of monthly administrative charge – this is how the companies make their money – but it should not be any higher than ten dollar per month.
Many of the less reputable debt management firms attempt to hide redundant charges within the monthly payments, and some of them add on an additional annual expense for exactly the same efforts! Not to repeat ourselves, but this is why a close perusal of the final good faith estimate is such an integral part of choosing the debt management companies. If it’s not within your capacity or if you haven’t the time (since so many borrowers who need to consider debt management are holding down two jobs), ask any of your friends or family who may be more experienced with financial matters or who have an accountant upon retainer if they could take a look to weed out such unnecessary fees. Sometimes a creditor will even insist upon proof of payment to the debt management firm in question before they undertake serious negotiations, but, as with everything, this should be verified beyond possible dispute.
While on the subject of monthly payments, another element of debt management that many borrowers unused to dealing with this sort of financing tend to ignore revolves around the lenders themselves. Remember, you are entrusting all payments to be made – which, in essence, means entrusting your credit rating for years to come – to the debt management firm, and it’s of the greatest importance that they understand and acknowledge their responsibility. Particularly lax or incompetent debt management companies (or, even, those companies that themselves have liquidity problems) have been known to delay the payments to creditors that they have been charged to transfer out.