Market Briefs Newsletter

Subscribe to our FREE finance & business newsletter to get financial news you can finally use.

Thanks for signing up to Market Briefs! Please check your email to confirm your subscription. If you don't see the email in an hour, check your spam and promotions folder. 

Be sure to read our Privacy Policy & Terms of Use.

  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Minority Mindset

Minority Mindset

Defy all odds.

  • Home
  • About
  • Blog
    • WEALTH
    • REAL ESTATE
    • STOCKS
    • SAVINGS
  • PRODUCTS
  • MONEY 101
  • GUAC TALK
Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

See more from Debt

11 Things You Need to Know About Debt Management Companies

February 9, 2021 by Ashley Simpson

Ashley Simpson Author
Ashley Simpson February 9, 2021

11 Things You Need to Know About Debt Management

Disclaimer

We only endorse products that we truly believe in. Some of the links below may earn us some extra guac at no additional cost to you. Please pass the chips & thank you for feeding our habit.

For many Americans, debt can feel like a mountain that’s way too tall to climb. In fact, the average amount of debt each American holds is over $90,000, a number that seems to rise year after year.

Whether you want to prevent getting too far into debt, or have some already, It’s comforting to know that there are debt management options available for everyone.

Debt management companies can be extremely helpful for some people while others may not need or want their services.

Let’s take a closer look at what exactly a debt management company is and what they can offer you.

PlatformPromotionsLink
Get a cash bonus of $30-$500 Sign Up
Get one free stock priced up to $225 Sign Up
Get up to $1,000 after funding a new accountSign Up
Get a free slice of stock worth up to $300Sign Up

What As A Debt Management Company?

If you are struggling to pay off your debts, bringing on a debt management company may be a solid move toward your success.

These companies specialize in creating plans to help you pay down your debt.

They do not offer you a loan. Instead, they help to negotiate with your creditors to reduce your interest rate, monthly payments, and any fees associated with your account. 

You will work directly with a credit counseling agency to determine exactly what you can afford to pay each month.

The credit counselor you work with will help you understand how to pay down your debt while still maintaining your payments on other expenses like your mortgage or car loan.

The end goal is typically to pay off all debt within a three to five year period. 

If you feel that a debt management company could be the solution for you, make sure to do some research into reputable agencies.

The United States Department of Justice has a list of approved credit counseling agencies that you can use as a starting point.

Whoever you choose will help you to create a monthly budget and determine how much you can afford to pay each month. 

Anyone can make use of this service regardless of how much debt you have.

There is no specific credit score requirement in order to enroll in a debt management plan.

Your credit counselor will help you to determine if a debt management plan is right for you whether you owe a few thousand dollars or $50,000.

A debt management plan could be used as a preventative measure to pay down debt before you accumulate too much.

If you decide to enroll, the credit counseling agency will take over paying your bills. For a small sum of money each month, you will make one lump sum payment to the credit counseling agency.

They will then divvy up the funds and send them to each of your creditors to pay your monthly bill while reserving a small sum to cover the cost of their services.

Invest Today With M1 Finance

11 Things You Need to Know About Debt Management Companies

Debt management companies are here for you, but if you don't understand the process going in, further problems may arise.

That's why it's important to understand not only what a debt management company does, but what roll you will have in the entire process.

Here are eleven things you need to know about debt management companies to help you make the decision about what’s right for you.  

1. Lowering Your Interest Rates

One of the very first things a debt management company will do is negotiate a lower interest rate with your creditors.

They can typically negotiate a rate that is lower by several points, ultimately saving you thousands of dollars in interest.

The annual interest rate on credit cards can sometimes be 20% or more, so tackling this first is a great first step to lowering your overall debt.

2. Eliminating Confusion

Depending on how many lines of credit you have open, paying your bills at the end of the month might feel confusing.

You could issue a check to several agencies and banks just to cover the bare minimum of what you owe.

For example, I have several store credit cards, a credit card through my local bank, and an auto loan. At the end of each month, I may have five or six bills to pay, each to a different company. 

One of the benefits of hiring a debt management company is that they take care of issuing these payments.

All of your debt will be consolidated into a single monthly payment made payable to the debt management company. From there, they will allocate the funds where they need to go. 

Invest Today With M1 Finance

3. Making Accounts Current

Let’s be honest. We’ve all missed a payment or two at some point in our lives.

With the switch to paperless statements, my email inbox is often flooded with a collection of messages about current sales and promotions as well as my monthly statements.

It’s easy to overlook those emails that contain your monthly statement, especially when you are in a hurry to mark everything as junk mail.

I’ve missed several payments this way due to careless errors in checking my email, resulting in whopping late fees that can sometimes double what I owe on my credit cards. 

Whether it simply slipped your mind or you were missing the money to pay, letting your account become past due can wreak havoc on your finances.

Missing payments come with late fees and an increased balance that is due.

A debt management company would have made paying these bills so much easier. They take your single monthly payment and divide it up to send to your creditors as necessary. 

Debt management companies can also negotiate with your creditors to re-age your account. This means that creditors could consider waiving your late fees and bring your account status back to current.

Of course, they aren’t likely to do this right away. They want to see that you can be regular in paying your bills first.

It often requires several consistent monthly payments through the debt management company first. 

4. Your Credit May Take A Hit At First

Count up how many cards you have in your wallet. I have seven cards, each to a different store or through a different bank.

Debt management companies often require you to close accounts that you are not currently using.

While this is a good practice to keep you from spending more than you should and effectively ruining your debt management plan, it can cause damage to your credit. 

If you had those lines of credit open for a long time, you will immediately lose access to that history.

This can cost you on your credit report. When you close a credit account, you no longer have access to that history or that credit limit.

This means that you will have a higher credit utilization rate, meaning that you are using a higher percentage of your available credit. Lenders view this as a potential risk. 

However, debt management is likely to boost your credit score in the long run if you stick with it.

It will lower the amount of credit that you are currently using until you are in the healthier range that lenders prefer to see (typically 30 percent or less).

Regular payments made on time can improve your credit score significantly if you remain consistent with it long-term. 

5. Setup Takes Time

As I said before, missing a payment on any one of your bills may end up costing you more than it was worth to pay the bill in the first place.

That’s what it’s important to make sure you know when your debt management plan goes into effect, and to keep making your regular payments until the plan is fully in motion.

Sometimes, it can take a month or two to set up your payments and get them over to your creditors.

In the meantime, you don’t want to skip a payment because it can damage your already-fragile credit and cost you in late fees.

Do everything you can to keep your accounts current until your debt management plan starts making payments on your behalf. 

Featured Partners

$0 Fees | $100 Minimum

Invest Here

$0 Fees | $0 Minimum

Invest Here

$0 Fees | $1 Minimum

Invest Here

6. Fewer Phone Calls

The higher your debt, the more phone calls you’ll get from debt collectors looking for you to pay up.

However, when you work with a debt management company, you can essentially pass all of the phones off to them.

They will help you make your accounts current so that collectors have no reason to contact you.

Plus, once you’re set up, your monthly payment with them ensures that you never have another late payment again. 

7. Debt Management Isn’t Free

Some debt management companies pull you in with promises of a free evaluation.

They may even boast a non-profit status. But rest assured, they are collecting money to cover their costs. Debt management companies frequently charge a nominal setup fee to get you started.

They may also charge somewhere between $20 and $70 in monthly fees for managing your debt for you. 

Debt management companies come up with a plan to pay down your debt.

They collect this monthly payment and then allocate those funds to pay your creditors. In exchange for handling these funds and issuing payments on your behalf, they collect a small sum of their own.

The convenience may be worth it to you, but it will cost you more than handling your debt solo. 

8. You Can Call Solo

While it may sound convenient to bring on a debt management company, you might be able to save more money by doing the work yourself.

You can avoid that pesky monthly fee by paying each bill on your own. 

However, if you decide to pay your bills on your own, you might lose out on one of the biggest assets a debt management company can offer.

Oftentimes, these companies contact your creditors to negotiate things like reduced interest rates and lower fees.

It can seem intimidating to do this on your own at first, but it could yield big results like lower interest rates, waived late fees, and delayed payment.

Many creditors will want to help you avoid the dreaded B-word – bankruptcy. 

Invest Today With M1 Finance

9. No More Credit Lines

I know what you’re thinking. Your refrigerator is on the fritz and a store credit card could help you purchase a new one without forking over the cash immediately.

If you decide to hire a debt management company to help you solve your credit issues, you won’t be able to open any new lines of credit. 

This is a good thing, as you should be focusing on paying down your debt instead of accumulating more.

However, it can feel inconvenient when you don’t have the funds to purchase what you want or need. 

10. Some Debts Are Excluded

It might seem like a debt management company is the solution if you have a solid amount of debt built up, but be sure to read the fine print.

Many companies will exclude certain types of debt such as student loans, auto loans, and mortgages.

They only include unsecured debt such as some credit card debt, personal loans, or medical bills.

A debt management plan typically includes only those debts that are not backed by collateral. 

For other types of debt, your representative and financial counselor will likely give you some advice on paying down this debt, but they won’t include it in your official payoff program.

Keep in mind that you can pick and choose which debts you include in the plan, as long as they are unsecured debts. 

For instance, your credit card debt is unsecured because the money you use is not backed by a creditor or other financial institution.

In this case, if you don’t pay your bills, there is no physical asset that can be returned to your credit card company as a form of repayment.

These loans are unsecured because if you don’t pay, the credit company has no other way of receiving those lost funds.

However, your mortgage or auto loan is secured because your home or vehicles can be used as collateral, which means if you miss enough payments, the loan issuer can repossess your house or car as a form of repayment.

These loans are secured because whether or not you pay, the loan issuer will receive something in return.

11. You Must Take Control 

A debt management plan can be a great tool to get your finances back to a healthy place.

Unfortunately, they don’t do much for you if you aren’t willing to take a closer look at the spending habits that got you here in the first place.

Working with a debt management program makes it more difficult for you to open new lines of credit and continue spending money you don’t have.

The question is, what happens when you have officially paid off your debt? 

The best thing you can do for yourself is to take control of your finances and spending habits now. If you don’t know much about personal finances, educate yourself.

Hire on a financial planner to help you make a budget, to see where you can make cuts in your monthly expenses, and help you learn from your mistakes.

If you really want to avoid going into debt again, taking control of your finances is absolutely crucial. 

Final Thoughts – Is Debt A Management Company Right For You? 

Debt management can be essential to help you get a grip on your credit, but it isn’t for everyone.

Weigh the advantages of hiring a debt management company heavily before making the decision about what’s right for you!

If you are ready to take the first step toward lowering your interest rates, reducing your monthly payments, and making a game plan to pay off your debt in the next few years, find a credit counseling agency in your state through the United States Department of Justice.

A credit counselor can help you to unlock all of the advantages you found listed here.

PlatformMinimum Link
$10Sign Up
$2,500Sign Up
$5,000Sign Up
Ashley Simpson Author

Written by Ashley Simpson.

Ashley Simpson has been a writer and personal finance connoisseur for almost a decade. While she definitely categorizes herself as a saver – not a spender – you will often find her splurging on a good cup of coffee!

Primary Sidebar

Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

More From Debt

  • Should I Refinance Or Just Pay Extra On My Mortgage Payments?
  • 11 Things You Need to Know About Debt Management Companies
  • Beginners Guide To Getting A New Mortgage
  • Home Buyers Guide To Understanding Inspection Contingencies

Get Your FREE Guide To Building Wealth

& our daily newsletter

Thanks for signing up for our financial education emails! Check your email to confirm your subscription. If you don't see the email in an hour, check your spam and promotions folder.

Be sure to read our Privacy Policy & Terms of Use.

Featured Debt Posts

Should I Refinance Or Just Pay Extra On My Mortgage

Should I Refinance Or Just Pay Extra On My Mortgage Payments?

11 Things You Need to Know About Debt Management

11 Things You Need to Know About Debt Management Companies

Real Estate Tips You Need To Know Before Buying A Home

3 Common Real Estate Myths You Should Know Before Buying Your First Home

Four Ways To Save Money When Buying A Home

How Much You Should Spend On Your Home - Plus 4 Ways To Save!

The Latest On Debt

Guide to First Mortgage Purchase

Beginners Guide To Getting A New Mortgage

Everything You Need To Know About Inspection Contingencies

Home Buyers Guide To Understanding Inspection Contingencies

crunching the numbers to refinance student loans

10 Ways To Pay Off Student Loan Debt Quickly

Footer

Keep Hustlin’

Company

  • About Us
  • Store

Help

  • Contact Us
  • Advertise
  • YouTube

Legal

  • Privacy Policy
  • GDPR Opt-Out
  • Comment Policy
  • Terms of Use

Follow us on:

Disclaimer: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements, and seek independent professional advice, before making any financial decisions. Our content is provided for informational purposes only, and no content that is provided or included in our products or services is intended for trading or investing purposes. We will not be liable for the accuracy, usefulness, or availability of any information transmitted and/or made available by way of our products or services, and shall not be responsible or liable for any trading and/or investment decisions made by you based on any such information. For a further understanding of this Disclaimer and use of our site, please see the information contained in our Terms of Use and Advertising Disclaimer.

Minority Mindset may earn a portion of sales from products that are purchased or recommended through our site as part of our Affiliate Partnership with retailers and brands.

Minority Mindset has partnered with CardRatings for our coverage of credit card products. Minority Mindset and CardRatings may receive a commission from card issuers.

© 2023 Minority Mindset, LLC. All Rights Reserved.
Website managed by Stallion Cognitive™