Reader Question – What Do You Think of Debt Management Firms?

I received a great question from a member of #teamdebtfree. We haven’t touched on this topic in a while, but it’s a good conversation to have.

For many, facing the prospect of repaying a large amount of debt is daunting. A long term pay off plan may not seem doable or frankly desirable; especially in the face of so many advertisements for quick fixes.

Let me encourage you to exercise patience. Getting into debt doesn’t happen overnight. Working your way out will take time.

Too many are willing to prey on the desperation of those in financial turmoil. It’s important to remain calm, collect as much good information as you can from trusted sources, and make wise decisions about your financial future.

reader-question

If desperation describes how you feel…

Breathe…

Count your blessings…

And try to remember that money troubles are just a thing. As long as your health or immediate safety are not at issue (kneecap bashing long sharks aside), a resolution is available.

Back to the question.

The question asked for my thoughts on debt management plans as it related to a large amount of credit card debt.

“[A friend] and her husband have a sizeable amount of credit card debt due to a couple of medical issues that required a significant amount to be paid out of pocket as well as some very significant car repair bills after they were hit by an uninsured driver.”

 

In general, I am not in favor of debt management companies.

1. This industry is loaded of scam artists. This industry is on the FTC’s top offender’s list of most complained about services. Not all, but it’s just so easy to take advantage of customers and/or provide poor service that it almost isn’t worth the risk. I would need several personal recommendations from people I knew and trusted before working with a debt management company.

2. You pay a company to do what you can most definitely do yourself. I prefer doable DIY. Additionally, the money paid to the debt management firm could be directed to paying off debt.

3. If payments are not handled in a timely fashion by the company, you still incur a negative credit marks. I’m not comfortable handing over control of my financial well being to an outside party. Many companies are being sued by state’s attorneys general for misrepresenting either their nonprofit status or services. Until such lawsuits are completely resolved, you risk doing business with a company that can do more harm than good.

The other problem with this approach is if the habits that created the problem are not addressed, there is a high likelihood that you can be in the same situation again in the future.

If you are going to work with a debt management firm, I’d make sure that:

  • The firm is licensed by your state.
  • Your creditors are on board with the debt management firms process.
  • There will be no delay in making payments on your behalf in order to begin the process. Payments should begin immediately according to your current payment deadline schedule.
  • The management firm’s fee is a small percentage of your payment each month and not a large upfront payment that is collected before the repayment service begins.
  • Creditors will remove any negative notations from your credit report once the debt repayment plan is complete.
  • Confirm each month that your bills are being paid on time by closely monitoring your statements.

 

If you are willing to be this invested in the actions of a debt management firm, you can assume this responsibility yourself. There are no quick fixes. Our spidy senses should be on alert if anyone tries to convince us otherwise. That’s a HUGE red flag.
Also, seek financial education and support to help rebuild productive money management habits.

I’m actually doing a Financial Snapshot review and trying to help people find an extra $200/month in their budget. Anyone can complete this form and then sign up for a time slot to review with the link provided at the end.

I offer tips to apply a debt snowball to your debt in this interview on Business First with Angela Miles.

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