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Debt management agencies are on the increase all over America. This is a reflection of the fact that millions of people are finding it difficult managing or paying their debts. If there is no demands for debt management services, you won’t see these agencies springing up all around.

What do the debt management agencies do?

Essentially, debt management agency acts as a middleman between debtors and their creditors. If you choose to engage a debt management agency, they will help you make your monthly payments to your creditors. But you must understand that this is not that you are taking another loan from the agency. Although it is like consolidation of your credit cards but in the real sense, you are not taking a loan. You will have to make money available to your debt management agency every month. The agency in turn will help you distribute the amount that you pay to cover all your unsecured debts such as credit card debts, unpaid medical bills and student loans. They know how best to allocate the payment. Debt management agency can help you negotiate with your creditors for lower finance charges. Also, they may help reduce the calls you receive from creditors or collection agency. In return, you will pay them a fee for their services.

Do you actually need debt management agency?

If I may ask, why do you want to hire a debt management agency? I think the main motivation about debt management is the fact that you will only need to deal with one company. Instead of paying your creditors individually, you will only need to pay your debt management company. The company will be the one to pay all your creditors on your behalf. If you are the type that usually fall behind in your payments thereby incurring late penalty fee, a debt management company can help you save the amount you would have paid on late payment fees. But considering the fee you will need to pay them, you may need to weigh your decision. On average, debt management agencies charge $50 per month. That means, if you enroll in a debt management program, you will pay $3,000 on a five year repayment plan. Besides, with debt management program, your credit cards will be closed and this will hurt your credit score. However, you may be allowed to leave one of your credit cards open in case of emergency. A good alternative to debt management is debt consolidation. This will require taking a new unsecured loan to pay off your other creditors. However, if your credit is bad, this may not be feasible for you to do. Some financial institutions may require a collateral which will serve as security.

Read Also: Using Debt Avalanche Strategy to Get Out of Debt

Do-it-Yourself Debt Management

Debt management is what you can do by yourself. All what you need to do is to master the dos and don’ts.

Dos of Do-it-Yourself Debt Management

• Receive free credit counselling: If you knew what to do, possibly you would not have been in this situation. You should admit that you don’t know it all. Reach out to those people who are experts in the area of debt management. This does not mean that you should pay through your nose. There are non-profit agencies that offer free credit counselling services. A good example is Incharge Institute of America, Inc. Seeking advice does not necessarily mean that you should enroll in a debt management program.
• List all your debts: List all your debts and develop a strategy of paying them back. The two popular strategies for paying back debts are snowball and avalanche. You may choose to focus more attention on debt of the least amount. You can easily pay this off. As you finish paying the debt, you will be motivated to pay off the next least debt. This will continue until all your debts are totally paid off. On the other hand, avalanche strategy means that you will pay the debt with the highest interest rate first. This will help you reduce the amount you spend on interest payment.
• Develop a budget: You should list all your income and expenses so as to ascertain how much you can afford to put aside towards paying off your debts. Your list of income will include your wages, benefits, bonuses, tax credits and any other form of income. At the same time, you should endeavour to list all your expenses such as utilities, rent, insurance, transportation, food and travel, tax and others. But you will need to cut your expenses drastically if you are actually willing to get out of debts. Your expenses should be on items that are necessary while you do away with the ones that are not essential. You can even be creative on the ones that are essential to see how you can keep them to the barest minimum.
• Contact your creditors: Contact your creditors and let them understand your plights. Try to negotiate with them and let them know about your willingless and the arrangement you are putting in place to pay the debts. Some of them may be willing to help you reduce the interest on the loan so as to make the payment easy for you. But you need to have a very concrete arrangement on how you intend to pay back the debts in place before approaching your creditors. This will convince them that you are serious about the debt repayment.
• Set up automated payment: Having agreed on how you plan to pay back the debts, you need to stay focus and keep to the payment terms. Since you are certain about the amount you want to be paying every month and that you will be able to afford the payment, you can set up automated payments. This will guide against falling late in payment when due.
• Monitor your accounts: As you keep making your monthly payments, the debt balance should be reducing. It is a good idea for you to keep an eye on your accounts. If there is any error in the accounts, you can easily identify it and have it corrected.
• Earn more income: Earning more income will help you in two ways. You will have money to buy your basic needs and you will have extra money which you can put towards paying your debt. This will accelerate the realization of your getting out of debts objective.

Read Also: How to Use Debt Snowball Method to Get Out of Debts

Don’ts of Do-it-Yourself Debt Management

• Don’t fold your hands: The worst thing to do when in debts is to do nothing about it. Remember that the debts started from somewhere. In the same way, if you want to get out from debts, it will start by you taking a step towards paying the debts. The problem with debts is that, the longer it stays, the more interest it accrues and the more difficult it becomes to pay back.
• Don’t overspend: Don’t spend too much. You should cut your clothe according to your size. Don’t buy on impulse. You should learn how to stick to your budget. If there is anything you want to buy which will make you overshoot your budget, you can decide to push such expenses to the next month.
• Don’t acquire more debts: If one is not disciplined, one can easily fall for reward credit card offers. You should know how to say no to such offers no matter how attractive they may be.
• Don’t make late payment: Ensure that you make your payment on time. Late payment will not only ding your credit score further, it can attract penalty from your creditors. This will add to your debt balance.
• Don’t just make minimum payment: There is nothing bad in making minimum payment if it is part of your repayment plan. You may want to focus on a particular debt while you just make minimum payment on the others. But making minimum payment on all your debt may keep you in debts perpetually
• Don’t ignore your creditors: In case your creditors call you, you should endeavour to pick the call. Ignoring them can make things worse. Even if it happens that you missed the call, you can call them back. This will give them the assurance that you are not ignoring their calls.

If you can keep to these dos and don’ts of Do-it-Yourself debt management, you may not need to engage the services of debt management agency. At least, this will save you some costs. You can use the savings to pay down your debts.

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