Some things to consider

Before actually agreeing to be enrolled to a debt management program, an individual needs to ask the following questions to the debt consolidator. The answers to these questions will determine how the program will be applied towards the customer's loans.

• How much are the monthly payments? The goal of acquiring a DMP, as its name implies, is to manage debts. Fittingly, the regular payments need to be in affordable amounts, according to how the credit counselor assesses the customer's need. If the monthly payments that the debt consolidation agency is requiring of you are way beyond your budget, you may want to consider other options. Besides, inability to pay for monthly payments on a DMP defeats the purpose of being enrolled in the program in the first place. Going default on this plan would be even more risky.

• How will my payments be scheduled? Make sure to arrange the payment schedule with your debt consolidator accordingly. The payments going towards your creditors should be on the correct due date and billing cycle; if possible, date your payments at least a day or two before your payment due date in order to prevent missed transactions. On your end, it is your responsibility to make sure that your payments are made on time.

• How will I be updated on the status of my payments? Would you be receiving your status reports online, or by mail? Does the debt management agency have a toll-free number that you can contact in the event that you have questions? Ensuring that the firm you would be working with would provide you with detailed, regular statements referring to your payment status allows you to track your progress and guarantees you that your money is going to the right place.

• Will my accounts be made current once I enroll in the program? Once the account is in a debt management program, creditors may choose to “re-age” the accounts, or place them in current status. As a consumer, you need to find out when your account will be re-aged by your lenders. How long, or many payments would it take before the account would be made current? Bear in mind that in spite of being rendered “current,” negative notations such as late payments and past delinquencies will still reflect on your credit report.

• Are you legal to operate in my state? Several states require these organizations to obtain necessary licenses in order to perform their services within your area. Doing a little research on your own by contacting your state attorney general or a lawyer operating within your area can greatly help you. In the same way, make sure not to conduct business with a firm that is not licensed by your state.

The next step

If the credit counselor recommends that the individual be enrolled into a debt management program, all of the customer's loans will be combined together as one consolidated loan. The customer will no longer be making separate payments to each of their debts. Instead, he or she will be required to deposit a certain amount of money to the firm each month. These amounts, in turn, will be equally distributed among all their creditors. In essence, a debt management program is the very heart of how the debt consolidation agency functions. Credit consolidators usually promise potential customers that they can negotiate with lenders to reduce interest rates or stop other fees and charges from adding up on the balance. Part of their action plan is also to send a proposal stating their terms and conditions of repayment towards the loan. The lenders may agree to the agency's proposal. Interest rates may drop down and extra charges may be stopped once the debt management program has taken effect.

Bear in mind that it is not advisable for an individual to start sending payments to the consolidation firm until his or her creditor has approved of the proposed plan. As a customer, verifying if this information with your creditor is accurate is a must; one also needs to find out when the promised changes have taken effect.

Some resources to check out before choosing to use a credit counselor:

Debt Management Drawbacks

How does debt settlement work

How does debt consolidation work