Choosing the right debt management agency

We ask what costs are involved in setting up a debt management plan and whether there are alternatives to paying these costs.

 

If you are thinking about using a debt management plan (DMP) to solve your debt problem then an important factor to consider is what costs will be involved.

 

If you want a debt management company to provide a DMP service for you they will normally ask you to pay two types of costs.

 

There will be an initial cost to set up the debt management plan for you and then you will have to pay an ongoing cost if you want the debt management company to run your DMP for you.

 

 

Most debt management companies will make an initial set up charge for putting your debt management plan in place.

 

This initial charge will cover preparing your income and expenditure statement with you and carrying out the negotiations with your creditors to reduce your monthly payments.

 

The cost of setting up your debt management plan will normally be equal to the first one or two payments that you pay into the plan.

 

In other words, the first one or two payments you make will not go to your creditors. They will be kept by the debt management company for the set up work that they do.

 

 

Once your debt management plan is up and running the debt management company will then start to charge and ongoing management fee.

 

The cost of this management fee will normally be around 17% of the amount you pay into your plan each month.

 

The fee is charged to cover the cost of managing the monthly payments to each of your creditors and any ongoing negotiations that are required to ensure your creditors freeze their interest charges.

 

The DMP management fee will be automatically deducted from the payment you make into your plan each month.

 

You need to understand that by paying this fee, not all of the money you pay into your debt management plan each month will go to your creditors and this will add to the overall time it take to repay your debt.

 

 

If you are concerned about the costs involved with setting up and running a debt management plan, there are some cost free alternatives you could consider.

 

The first thing you could look at is the possibility of setting up and managing a DMP yourself.

 

There is nothing to stop you negotiating a debt management plan with your creditors yourself and then managing the ongoing payments.

 

Alternatively you could pay a debt management company to set up the plan and then manage the ongoing payments yourself thus saving the ongoing management fee.

 

If you do not want to set up and manage your debt management plan yourself, you could consider using a free service. There are one or two organisations that will set up and manage a debt management plan for you for free

 

 

Many people decide to pay a debt management company to set up a DMP on their behalf rather than doing it themselves or using a free service. There are various different reasons for this.

 

You may feel that you do not have the time or the confidence to negotiate with your creditors yourself.

 

Using a reputable debt management company means you can be sure that any objections raised by your creditors will be dealt with and the company will do their best to get interest and charges stopped.

 

You may also want to be confident that the company you are working with focuses on your interests.

 

If you use a free debt management service there is always a question as to whether the company is working in your best interests as ultimately the DMP service is paid for by the creditors themselves.

 

As with all debt management solutions, the cost of a DMP is an important thing to think about when deciding if it is the right thing for you.

 

The key thing is to understand exactly what you will be charged and why. Then you can make a sensible decision about whether the DMP is the most suitable option for you.

Watch the video related to debt management

www.cambridge-credit.org — As Americans struggle to manage their finances through the economic downturn, many are turning to the debt servicing industry for assistance. Unfortunately, the public routinely confuses the types of services provided by debt settlement and debt management agencies, which differ significantly.Watch this week’s webisode from Cambridge Credit Counseling Corp. to learn more. Host Community Outreach Director, Thomas J. Fox.