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Best Debt Management Companies for 2021
The 6 best debt management companies of 2021
- Cambridge Credit Counseling — Best for interest rate reductions
- GreenPath Financial Wellness — Best for customer-friendly features
- InCharge Debt Solutions – Best mobile app
- Apprisen — Best for low fees
- American Consumer Credit Counseling — Best overall transparency
- Clearpoint Credit Counseling — Best educational resources
|Company||Enrollment Fee||Monthly Fee||Licensed Nationwide|
|Cambridge Debt Counseling||Average is $40; capped at $75||Average is $30; capped at $50||Not available in Minnesota, Wisconsin and Virginia|
|GreenPath Financial Wellness||$0 – $50||$0 – $75||Yes|
|InCharge Debt Solutions||$75||$33||Yes|
|Apprisen||capped at $45||capped at $45||Yes|
|American Consumer Credit Counseling||$39||$5 per account in plan; capped at $50||Yes|
|Clearpoint Credit Counseling||Determined by state; capped at $75||Determined by state; capped at $50||No. Call 800.750.2227 for more information|
The 6 best debt management companies of 2021
What is debt management?
When you work with a debt management company, you are authorizing it to speak with creditors on your behalf, then restructure the terms of your debt and consolidate it. You deposit money into an account managed by the company, which uses the funds to pay your creditors over a set period of time, typically 3 to 5 years. The debt management company negotiates lower monthly payments, lower interest rates or some combination of the two. Unlike debt management plans, debt consolidation plans generally do not reduce the total principal you owe on your debt.
What do debt management companies do?
Debt management companies are not loans. Instead, their counselors negotiate with your creditors on your behalf to lower the interest rate on your credit card debt and/or reduce the amount of your monthly payment. The goal is for you to have an affordable payment schedule, with monthly payments totaling no more than 2.5% of your annual income.
They also provide financial literacy counseling on a wide range of topics, including student loan debt, bankruptcy, medical debt, mortgages, budgeting and personal finance. Some debt management companies allow you to consolidate secured and unsecured debt into one payment plan; others deal exclusively with unsecured debt, mainly credit cards.
When you use a debt management company, you have a professional advocate experienced in dealing with credit card companies. You may get a bigger interest rate reduction when you work with a debt management company, and you’ll have a convenience of one monthly payment.
You’re going to pay for all this convenience. There is typically a fee to start and a monthly fee the entire time you are paying down the debt. You also have to watch out for unscrupulous companies that will renege on promises and fail to make timely payments to your creditors. Finally, you can’t use your credit cards until the debt is paid in full.
Who might consider debt management?
Debt management is typically a viable option only for unsecured debt — credit cards, medical bills or other debts that don’t involve collateral. Although student loan debt is unsecured, it is often ineligible for debt management plans. Secured debt — auto and home mortgage loans — aren’t the focus of debt management programs, though there are exceptions that will consolidate both types of debt.
The ideal candidate for a debt management program is someone whose credit card or medical debt is 15%–39% of their annual income. Less than that, and you are probably better off tackling the debt on your own. More than that, and you may be better served by bankruptcy.
How much do debt management services cost?
The cost of a debt management plan does vary from company to company. There are two main fees — a startup (or enrollment) fee to establish your repayment plan and a monthly fee to manage your account. On average, nonprofits charge somewhere between $25–$55 a month, while the industry average for start-up fees is $75.
There is another hidden cost as well. Although using a debt management company won’t hurt your credit score the way bankruptcy will, it will appear on your report, and some lenders may view it as a sign that you pose a greater risk.
How can debt management help me?
- A debt management company will set up a plan that lowers your interest rate and may lower your monthly payment.
- It may (but doesn’t always) stop harassing calls from creditors.
- It leaves you less vulnerable to late fees, assuming your debt management company pays your bills on time on your behalf.
- It makes it easy for you to stay organized because you are paying just one bill to the debt management company itself.
Everyone’s situation will be different, but let’s look at an example of the kind of savings you might expect with a debt management program. Let’s say you have $20,000 in credit card debt at an average interest rate of 21%. You would have to pay $800 a month just to keep up with a minimum payment of 4% of your balance.
If you were able to manage this payment — and not add anything else to your debt load — you could be debt-free in just shy of three years, ultimately paying interest of $6,533.
Assuming the best scenario — a 9% interest rate drop — and a four-year plan, your monthly payment could shrink to $576 (this includes a monthly fee of $49, which could be lower or dropped completely), and your total interest paid would shrink to $5,276.
What do I need to watch out for with debt management?
- It can be difficult to complete a debt management program. Most plans take three to five years, and up to half of enrollees don’t even finish. One reason it’s so difficult is that most programs will require you to close your credit accounts and refrain from opening new ones until your debt obligation has been completely discharged.
- You’re paying for something you may be able to do yourself, free of charge. Even if you have tarnished credit, you may be able to consolidate the debt yourself or negotiate lower interest rates and payments directly with your creditors on your own. If you can manage to do it yourself, you’ll save a lot of money on fees.
- It could hurt your chances of getting credit in the future. Technically, entering a debt management plan shouldn’t hurt your credit score — certainly, not the way bankruptcy, or debt forgiveness will. But if your debt management company ever misses a payment on your behalf, your score will take a hit. Also, prospective lenders may shy away from making loans if they see you’re in a debt management program.
How to choose the best debt management company
Choosing the best debt management company boils down a few things — reputation, accreditation, fees and types of debt the company will consider consolidating. Here’s what to be on the lookout for.
- The debt management company you choose is accredited. If it isn’t, that is a big red flag. Look for accreditation from national groups like the NFCC, the Association of Independent Consumer Credit Counseling Agencies (AICCCA) and the Council on Accreditation (COA).
- The fees are lower than average. Given that all debt management companies do basically the same thing — consolidate and restructure your credit card debt — you might as well pick an accredited company that costs you less. The benchmark to get below is $75 to start, then $40 a month.
- Customers like doing business with them. This also should be a company that treats its customers fairly. Check out reviews of each debt management company and look up their BBB rating.
- The company can consolidate the type of debt you have. Because companies are only able to lower the interest rate on certain types of unsecured debt, they may not be able to add secured debt to your plan, which eliminates the perk of one simple monthly payment. It pays to ask if you’ll be able to consolidate different types of debt before you choose a debt management company.
- The website is optimized for mobile if you need it. If your austerity plan includes canceling Internet and cable, you want a plan you can use from your phone. Being able to navigate and use website features via mobile also comes in handy when you’re not close to home.
- There is a wealth of financial literacy information. Setting up a plan is one thing, but you also want to learn how to avoid debt in the future. The debt management company you choose should be committed to education, including articles on a wide range of finance topics, user-friendly calculators and counseling sessions on various types of debt.
Avoiding debt management scams
The companies I’ve highlighted above are reputable, but if you’re considering a debt management plan, remember to keep your guard up. While there are many reputable providers, unscrupulous companies target people seeking any form of debt relief, including debt management. Here are some red flags:
- You should be the one to initiate contact. Shady debt-relief companies are more likely to aggressively search for and hound potential clients.
- Credit counseling should come first. You should have a thorough credit counseling session to review your options before signing up for a debt management program, and your counselor should not pressure you into any program.
- Be wary of guarantees. Legitimate debt management companies simply can’t guarantee that they’ll be able to reduce your interest rates or payments a certain amount.
- Do your homework. Double-check a company’s nonprofit status with the IRS. Look at the company’s Better Business Bureau rating and any other online reviews you can find. Almost every company will generate complaints, but some will generate far more than others.
- Fees should be reasonable and clearly disclosed. Fees for debt-management programs are capped according to state law but generally shouldn’t exceed an initial fee of $75 and a monthly fee of $50. Most reputable nonprofits can reduce or waive fees for those who cannot pay the full amount.
- Get everything in writing. You’ll need to know details including exactly how much your monthly payment will be, when it’s due, what fees you’ll be paying, how long your plan will last, and what debts are included in your plan.