A debt management company helps a debt-ridden individual or business to get out of debt. This does not mean that the company gives a loan to repay the debts. Instead, it negotiates with the creditors and consolidates all the loans into a single comfortable amount that can be paid in single installments.
Debt management is most suited for small businesses that are on the verge of bankruptcy. However, you too can benefit by opting for this service. The warning bells should go off when you find that more than 40 per cent of your after-tax income is being funneled into repaying debts. This is an indication of your debts becoming unmanageable.
The debt management companies are staffed by professional counselors who will take a good, hard look at your income and expenses and advise what needs to be done. They will also negotiate with your creditors and try to arrange lenient interest rates or a longer repayment period.
The most important is that they will keep the collection agents off your back. This, in itself, is a big help for there is nothing more unpleasant than dealing with a collection agent. In addition, these companies will be able to counsel you on how to manage your money, how to budget and most of all, how to control your expenditure.
You will find that there are several debt management firms. Some are professional, profit-making units that, charge hefty fees and provide excellent services. There are others with a more social outlook. They are the ones that can be termed as non-profit organizations. These firms will negotiate with your creditors, work out a comfortable repayment plan and assist you to move towards a debt-free life with evangelistic fervour and, practically no fee.
However, there is nothing to recommend one over the other. Before employing the services of a firm it makes sense to do your homework. Find out how the company stands with the Better Business Bureau Office in the region. Do some research on how the company pays the creditors. If the payments are made frequently (every week) then it means you get lower interest rates and no late fees. A firm that does not pay out regularly spells trouble for you.
It is also important to know if the company has reserve funds. The last thing you’d want is a company that goes out of business after you’ve paid it.