Once upon a time, a debt monster moved into a couple’s house. It took up residence in their garage (a BMW) and the living room (wall to wall entertainment center). It learned to eat the extra cash stored in their cookie jar. Not only that, the monster had full rein of their business finances until the couple learned that a debt management program and other debt-reduction strategies could make it go away.
Unless you learn how to manage debt and pay off creditors, you probably feel like you surrender your finances to a proverbial debt monster. In this post, you’ll learn how debt management programs work, their pros and cons, and alternatives for paying off debt.
What is a debt management program?
It’s a program where credit counselors analyze your financial situation so they can intervene on your behalf with the creditors to whom you owe money. They recommend and implement a debt management program to help you eliminate debt. Furthermore, they teach you how to stay on a budget, control spending, pay expenses, and learn how to become debt-free.
How do debt management programs work?
Debt management companies work directly with creditors to lower credit card interest rates, shorten the time to pay off debts and waive late and over-limit fees. Their goal is to settle your accounts. They review your income and expenses and recommend the best plan to pay off your outstanding debts.
Rather than continue to make individual payments to creditors, a debt management company consolidates your unsecured debts into one payment. By doing so, interest rates on credit cards and personal loans are normally lower. On average, you can pay off these types of debts in 3-5 years. In addition to paying off debt, you learn the root cause as to why you overspend.
Pros and cons of debt management programs
Finding a solution to a problem always comes with advantages and disadvantages. Here are the pros and cons of using debt management programs.
|You have one payment instead of many. The monthly amount doesn’t change. As one creditor is paid off, more money goes toward other creditors you owe.||You normally can’t apply for or use additional credit when enrolled in the plan.|
|It’s possible to reduce interest rates, fees, and monthly payment amounts.||Some organizations are non-profit while others charge for services. Fraudulent organizations charge hidden fees or promote scams.|
|You know the exact date when you’ll pay off unsecured debt.||The average time to pay off debt is 36 to 60 months.|
|Credit score and history improve over time.||You will need to make sure the agency pays bills on time and according to your specific debt management plan (DMP).|
|Creditors stop contacting you about your bills.||If you drop out of the program, you lose interest rate reductions and penalty concessions.|
|You learn how to stay on a budget and organize your finances.||You’re responsible to continue to make payments on other bills (examples include secured debts, tax debt, unpaid child support payments) that don’t qualify for DMP.|
Is a debt management program right for you?
If your business and personal debt is out of control or you face potential bankruptcy, you may need help. But you need to make sure a debt management program is what you need.
Answer these questions:
- Do you feel overstressed because you can’t get control of your finances?
- Are collection agencies flooding your inbox with emails or leaving messages on your phone?
- Do you feel like you need help to learn how to manage debt?
- Are you okay with not having access to a credit card (or possibly just one with a small credit limit) until the DMP is complete?
- Are you disciplined enough to stay with a DMP for the long haul (up to 5 years)?
- Did you know some creditors indicate on your credit history that you’re paying through a third party? For some lenders, that’s a red flag and may prevent you from qualifying for a future loan.
If you answered “yes” to most, if not all, of these questions, then a debt management program is definitely what you need to get out of debt.
Alternatives to debt management programs
Because businesses and their owners are all different, a one-plan-fits-all-resolution doesn’t exist. And it’s also important to weigh all of your available options before you commit to a debt management company to negotiate with creditors.
Here are other ways to reduce debt without using a debt management program:
- Become familiar and then put into practice these “10 Strategies to Pay Off Debt Quickly.”
- A secret to getting and staying out of debt is figuring out why you overspend. Most people get tripped up because they overuse credit cards to make purchases. If that describes your situation, learn the proven techniques on how to get out of credit card debt.
- Get a debt consolidation loan. It’s a loan that is used to pay all of your other debts. After using the loan money, you’ll only pay one monthly fee to the lender, instead of paying multiple creditors.
- Consolidate debt by getting a business loan to pay existing debts. When you do, you’ll most likely have more cash on hand. Put any extra money into a savings account and designate it only for emergency uses (hint: routinely buying gourmet coffee doesn’t qualify).
- Debt settlement is a viable way to settle your debt with creditors. It’s possible to negotiate what you owe creditors and pay less either as a lump-sum payment or reduced monthly payments.
Camino Financial can help you manage debt
We are specialists at pairing the right loan with your business. Because we firmly believe in our motto, “No Business Left Behind”, we focus on the best ways to help our members achieve financial success.
We can help you get out of debt by offering microloans for $5,000 to $75,000 and small business loans ranging from $10,000 to $400,000. You can use the funds to pay off loans and credit cards used for business purposes. Additionally, we don’t use your credit history or collateral to secure a loan.
If you’re struggling financially, we invite you to contact us. We will help you remove the debt monster from your life so you can move closer to financial freedom.