Can anyone give me any insight on pros and cons of a debt management program?

Question

I don't know much about how these companies work. How will it effect my credit score? I have a good credit score now with no late payements ever. Will they close my credit cards? If so, doesnt that hurt my score because it takes away a lot of available credit? I'm hoping to hear some success stories if possible. Thank you all and have a wonderful holiday season.

I had a tradegy happen...my house burned downs and the insurance company didnt cover any of the intererier. Long story! Anyway, I have about 45,000 in debt right now between credit cards and loans. I also have a 1920 a month mortgage. my income is fine its just there is no room to breathe. I currently put about 1800 a month towards credit cards and it feels like it never goes down...

Answer 1

Several years back, I went through Money Management International (www.moneymanagement.org) out of Texas (affiliated with Consumer Credit Counseling Service) when I was overloaded in $35k in CC debt. I set up everything over the phone and fax with them as I live far from Texas.

Most of my debt was from the accumulation of interest over the years - not because of going on shopping sprees as people may think. My worst interest rate (First USA Bank at the time) was jacked up to 25.7% interest - but not because I ever missed a payment! The bank raised it because they said my credit report showed too much revolving debt. Bunch of jerks - put me in more debt so I can never pay it off.

I went with MMI and they lowered this card's interest rate to 6%!!! A lot better than nearly 26%.

I am debt free now. I went through the whole program and got it all paid off. I made any extra payments I could to get it paid.

Make sure you go through one of the CCCS divisions (www.cccs.org). DO NOT go through one of the ones that REQUIRE money from you to go through this. Some want to keep your entire first payment as their "fee" for helping you. MMI asked for a "voluntary donation" of $30 a month, but I refused and they said that was OK - they never charged me a dime. Not sure what the rules are now, but you should call and check.

This process actually helped my credit scores because I was able to pay down my debt faster. There was no notatation whatsoever on my reports that I was going through a debt counseling agency.

Yes, they will require you to cancel your credit cards. Make sure you do this right after signing up with them so it can reflect "closed by consumer" on your reports. Otherwise, the CC company will close it for you and it will show it was "closed by creditor" - you don't want that. Also, get a letter in writing from your CC companies that prove that it was "closed by consumer" and file that away. I needed to have one of my letters later when I discovered that the CC company mistakenly showed "closed by creditor" on my report - I needed the proof to show otherwise.

Yes, theoretically your score will lower since you are closing available lines of credit. BUT, your scores could already be lowered now if you are near maxing out these cards anyway. If you have high balances, this is hurting your scores.

If your credit cards have high interest rates, which they probably do, they are making it very hard to pay down your cards to get out of debt and raise your credit scores.

Call MMI or CCCS to see what they can do for you. It worked for me.

Answer 2

I have been in a program for some time now, some things they have paid off and some things are takeing a long time. Depending of how much you can afford to pay, it can work out greatly. Otherwise, if you don't have a great deal of income and can only pay what you can the con is the creditor may not accept the terms. Hopefully, the company will talk you through the process. Good luck and you have a great holiday as well.

Answer 3

If you have "manageable" debt than id say you dont need a debt management company. what most of them do is require you to pay a set amount to them monthly and stop making any payments on your debt. Once your "fund" grows to a respectable level 40-50% of your debt, they negotiate a lower settlement payoff [usually 30 to 60%]to the card companies. At the same time they charge a fee typically 10% for their services. It works and it does end up in a lower payoff but in the mean time your credit score will suffer too!

Answer 4

You have to be cautious in dealing with these companies. Based on what I've read about them, some of them are legitimate (as in, they interface directly with your creditors) and others may not be...they may simply act as a "middleman" for your payments. Do as much research as you can on the companies you are looking at.

Personally, if you're making your payments on time, I would just suggest a bit of additional self-discipline. Set aside any extra money you get and use that to pay down your debts. Some people say get rid of the largest debt(s) first (they generate more interest that you have to pay); others prefer to start with the smallest (you see results faster, with more potential money freed to apply to other debt). As you can see, each has different advantages.

Good Luck!

Answer 5

ok first off if you are asking payments and can afford it dont get 1 ifell ill no insurance lost job and other things could not pay so went co advice bureau they told me to negciate my self with creditors and they may understand barckay card repayment plan now no intrst and £12 month i done this by slef deebt management company's is sort of a loan for the first year you are really only paying the management company LL THEY DONE IS WHAT I DONE negotiate low payments hope all goes well