Regardless of whether you live in the UK or US there is a good chance you have heard a lot of bad press about debt management companies. In the UK there has been so much trouble with these companies that the Office of Fair Trading has stepped in and put an end to some of the unfair business practices. As many bad companies that are out there, there are just as many good companies. If you find a good company they can help you to get out of debt. You can do some basic checks such as making sure they have a Consumer Credit Licence and seeing if they are members of DEMSA (Debt Managers Standards Association).
Debt management companies work with your creditors to try to find a way to get their bill paid off but in a way that is more affordable to you. When you use a debt management company they will try to get the interest reduced on your loan or credit card, though this can never be guaranteed. They will try to get the companies and banks to stop charging more interest and they will try to get the late fees you have acquired forgiven.
Some of the best organisations will help you with a budget that will work for you. That means going without the things you do not need. It is important that you do not keep using your credit cards or get anymore unsecured loans when you are on a debt management plan. This could put you in a worse position than you are already in. Not taking on more credit is likely to be a condition of any debt management plan (DMP).
You are going to want to talk with your appointed advisor about their fees before you hire them to help you. Make sure there are no hidden fees that they will try to make you pay. Only use a reputable company that has a good track record. This way you will know the money you pay them will go towards your debts. All reliable and honest companies will be totally clear about what they charge and how you pay it.
With any DMP that an advisor sets up for you, there will be one monthly payment, which should be more affordable than your debts were. This payment is paid to the company who will then divide the money up amongst your creditors. It is common for creditors to agree to a lower interest rate. They know that since you are struggling they may end up getting nothing if they do not agree, since you could default or file bankruptcy. With a DMP you will still pay back your debt but you will have less interest to pay.
This option can work for you and should be attempted before a bankruptcy. A bankruptcy will affect your credit for ten years. A DMP on the other hand will affect your credit too but only for a few years. You should have your debts paid in about 4 years. You might be wondering if you could possibly work with your creditors yourself. You can try to work out a payment option where your interest is lowered, but unless you know how to deal with creditors you may end up filing bankruptcy anyway. These specialist companies know how to handle creditors and will take care of all the hard work for you. Let them help with a new budget too. When you get your debts put into one payment you will want a new budget. Make sure it is a budget you will be able to keep up with.
You can find recommendations for some of the best debt management companies on the Authors website. He has created several websites that provide information about debt, including how to find good UK debt companies.
