Unraveling the Mysteries of Debt Management Counseling

By Clarky Davis



Consumers may have the urge to celebrate Federal Reserve Chairman Ben S. Bernanke's optimistic assessment that we'll see economic growth by the 2009 holiday season. But don't break out the party hats or credit cards so fast. Bernake's good news comes with a note of caution - once recovery starts, it likely will be a very slow process. We will still be faced with a weak job market and shrinking wealth, which will affect consumer spending.

With the rough economic ride we've taken through the past several months, everyone is eager for some uplifting news, but consumers must remain vigilant in their efforts to effectively manage their finances.

Our culture's reliance on credit has become a huge obstacle to achieving financial stability. Consumers must continue to extricate themselves from the ongoing cycle of credit card debt while learning to live within their means and building a savings cushion. This is no easy task when jobs are scarce and many are facing a reduction in their income. However, consumers must rise to the challenge and make significant changes in their lifestyles to dig themselves out of a financial hole.

Consumers want relief from their debt and are willing to seek professional assistance if they are unable to pay it off on their own. The process of paying off a significant chunk of credit card debt is time-consuming and requires a great deal of discipline, which is why consumers are attracted to the benefits and services debt management organizations provide.

There are many signs that a consumer should turn a debt management firm for help in paying off their debt.

¥ If you no longer can afford to pay the minimum payment on your credit card(s)

¥ If you are consistently using your credit card to buy basic necessities such as gas or groceries

¥ If you are consistently late with payments

¥ If you use your credit card for cash advances

¥ If you receive calls from a collections agency or creditors about unpaid bills

¥ If you have lost track of your total debt amount

¥ If you constantly worry about money

By seeking support from a debt management company, consumers can take advantage of better repayment terms offered by most creditors, like lower interest rates and waived late fees. They are able to pay off debt in three to five years rather than the average 25 years it could take by just making the minimum required monthly payments. Credit card and other unsecured debts are consolidated into one monthly payment so consumers can streamline their payments.

For many, credit counseling is a mystery. Consumers often are worried that they will be taken advantage of, and it's important that they know what to expect from a debt management service provider. Look for providers that offer one-on-one customer service available with multiple contact methods including online, phone and e-mail. The provider should clearly state the services offered. Consumers should receive a free budget analysis. Before a consumer is enrolled in any type of financial service, the provider must confirm that s/he has the ability to make payments and that the plan is appropriate for the financial situation. The consumer should have access to free financial/ money management education and support.

If a debt management program is the best option to help a consumer pay off debt, the consumer should expect the provider to consolidate all credit and debt payments, reduce interest rates, eliminate late fees, stop calls from collectors and provide money management and financial education. The organization must provide regular statements that include debtor payments and disbursements and all charges paid by the debtor.

Consumers also should expect to pay a limited fee for debt management services - no more than $50 per month, with a minimal upfront fee of no more than $50.

Consumers must be cautious when looking for a service provider to help them manage their debt. They should do their research to ensure the provider is licensed by the state and accredited by the Better Business Bureau.

It is doubtful that we will forget the many financial mistakes we have made, but acquiring healthy money management habits will help us avoid repeating them after the 2009 recession becomes nothing more than an unpleasant memory.



Clarky Davis is with CareOne Services (www.careonecredit.com), a credit counseling company in Columbia. She can be reached at 410-925-9769 or cdavis@careonecredit.com.