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PPS Resources

The following is an article that was originally posted on the Peaceful Property Solutions website. Please keep in mind that the information is subject to change and there is no guarantee as to its accuracy. Additionally, links that were previously valid may no longer work.

Debt Management Companies

While we cannot tell you that you should or should not work with one of these companies, we feel that it's worth sharing some information about their services. As with many things in life, knowing what you're getting into before you sign anything can save you a lot of stress and headaches later on. Keep reading if you'd like to learn more about what debt management companies do (and don't do), what you can do on your own, and what alternatives exist to debt management companies.

What They Generally Offer

Putting things in simple terms, debt management companies attempt to save you money by negotiating on your behalf for lower monthly payments and/or interest rates with your creditors, such as your credit card companies and auto lender.

They also frequently offer you the chance to make a single monthly payment to them instead of paying each of your individual creditors directly. This is intended to make things simpler for you, knowing now that you only have one bill to worry about each month and not several different ones.

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When they receive your payment they'll forward the money to each of your creditors. Sometimes this may be required and not an option.


While having smaller payments and fewer bills to pay may sound great, there are a few things that these companies are less likely to share with you.

​It's important to realize for instance that using a debt management company is not the same thing as consolidating your debts into one single loan. A consolidation loan is another, separate option which depending on the specifics of your situation may be a viable alternative. This is a service that a debt management company is less likely to offer, since it involves creating a

new loan to pay off your old ones.

While these companies will try to reduce your monthly payments and/or the total amount you owe, there is no guarantee that they'll be successful. Also, when you settle a debt for less than you owe by using a debt management company your credit score may be negatively impacted. Another thing that you're not likely to be told upfront is that essentially everything they can offer, you can do by yourself for free. You just need to know what to do.

Do It Yourself: Call Your Creditors

In order for a debt management company to negotiate on your behalf they will need your permission to contact your creditors. But all you have to do to plead your case is make a phone call. Debt management companies will never know your personal story as well as you do. Use that to your advantage when you call.

The simplest way to go about this is to call your creditors, one at a time, and explain your situation. It may take a while to find the right person who has the authority within the company to make changes such as lowering your monthly payment or interest rate. But be persistent and always be polite.

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Once you get the right person on the phone, tell them your situation in an honest but succinct way. You want the person on the other end of the phone to know that you respect their time and appreciate the fact that they're listening to you. Be upfront about what's happened and how it's impacted your finances.

Creditors are people just like you, and there's a good chance that they too may have been through tough times. After sharing your story, you want to politely ask if they would be willing to negotiate the terms of your debt. When making your case it helps if you can explain how and why making the changes you're asking for will help you to not miss future payments.

Some of the things you can ask for would be a lower minimum monthly payment, a lower interest rate, an extension of the loan (e.g. instead of

paying $100 a year for five years you would pay $50 a year for ten years). Of course, no matter how  well you make your case, your creditors can always say no.

When you obtained that credit in the first place you signed a contract and essentially what you're asking for now is to change that contract. Some creditors may outrightly refuse to negotiate with you, which they are completely in their rights to do. Other creditors may not be willing to make the change that you're asking for, but may be willing to work with you in a different way. This is why it's important to be polite, respectful, accommodating to their requests, and flexible with what you ask for. Of course in some instances, you might even get exactly what you ask for.

Organizing Your Debt

While it may be a good idea to put together a thorough budget that examines all of your expenses in order to help keep you from overspending and that allows you to identify things you may be able to cut back on, there are also simple things that you can do if you're having a hard time remembering to pay your bills.

Maybe you're not the most organized person in the world or maybe you're just overworked. Regardless of the reason, many people struggle to remember to pay their bills on time each month. We're all busy and some companies have started sending out bills later, given you less time between receiving your bill and it being due. This naturally makes it more likely that you'll be late and that they can charge you a late fee.


Many companies offer the option to set up automatic recurring debits. In other words, your creditor may allow you to have the amount you owe each month automatically taken from your checking account. While not everyone is comfortable with this idea, if you are it's a great way to make sure that your bills will be paid on time even if you forget about them. Not all companies will give you this option, but most of the larger companies will.

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Most banks also offer some form of what they call "bill pay", which is essentially the same thing. One benefit of using your bank to set this up is that you can see all of your bills together on one screen, keeping you more organized.

If you decide to use one of these services you'll need to make sure that your checking account balance can cover the amount owed each month. These options are best for people who have the money, but need help with organization. If you're living week to week and paycheck to paycheck, using one of these services may end up making things worse by charging you overdraft fees. Also, be sure to look into any fees you may be charged for using the service itself. Though some may charge, it should not be difficult to find a bank or other company that will provide the service for free.

Consolidate Your Debt

Consolidating your debt may not be an option for everyone, but if it's an option for you it may make things simpler to manage and may actually cost you less each month than you're currently paying.

While a debt management company may bill you once per month and then use that money to pay your individual creditors, with a consolidation loan you're sort of doing the same thing yourself-- but with two key distinctions.


First, the debt management company may be charging you for the convenience of having them make those individual payments. For example, if you paid them $150 to pay three bills they might not pay $50 to each of the three companies. They might pay themselves first and then divide the rest amongst the three creditors. Obviously if you take the do-it-yourself approach you would save any such fees.


Secondly, with a consolidation loan you're actually paying off your creditors and extinguishing that debt. So instead of having several creditors, each of which can have an impact on your credit report and credit score (for better or for worse), you would only have one company reporting on your payment activities and habits.

The challenge however may come in actually getting a consolidation loan. After all if you've been having trouble paying your bills, it will be harder to convince a lender to give you a loan in the first place. If you can get the loan however, the idea is that you would use the money from the new consolidation loan to pay off your other creditors and now only have the one bill to focus on. If you're fortunate you may even be able to pay less in total interest with the consolidation loan than you were when adding up the interest paid from your other creditors.

Let's assume for the moment that you are able to get a consolidation loan and look at how it could compare to making no changes at all. Please keep in mind that the numbers used below are for demonstration purposes only and do not necessarily reflect the actual costs, fees, percentages, rates, or other charges you may incur.

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Consolidation Loan

Notice that with the consolidation loan the total amount owed has not changed. It is still $125,000. What's changed is that you now have one loan instead of five and one bill to pay instead of five. Also because the interest rate was low enough the amount that you'll pay each month is actually lower than it was before.

Keep in mind that this is only an example. There is no guarantee that you'll be able to secure a lower monthly payment just because you consolidate your debt. You'll have to examine the numbers that pertain to your unique situation to see what options would be best in your situation.

Find a Reputable Company

While most companies out there may genuinely have your best interests in mind, that cannot be said for all companies. It's very important that you be careful of the various illegitimate companies out there trying to take advantage of you.


When we feel the most desperate and in need we're often willing to overlook warning signs that we'd normally spot, or jump at what seems like an opportunity to get back on our feet. Unfortunately scam artists know this all too well and often try to take advantage of any vulnerability they sense.

Earlier we mentioned that you'll likely make one single payment to the debt management company who will in turn pay your individual creditors. While it may sound convenient to only have to remember one bill each month, a scam artist could simply take your money and run. Then not only will you have lost the money you sent them, but you'll still owe your creditors, who themselves never got paid.


This warning is not meant to scare you out of considering such companies, but just to encourage you to do your research first and be sure to choose a reputable and trustworthy company with which to work.

To learn more about finding a reputable company click here.

How They Make Money

If you're contacting a debt management company, it's probably safe to assume that you don't have tons of extra money lying around. You also realize that companies need to make a profit in order to stay in business. So it's natural to wonder how you'll be able to pay for the services of a debt management company.


Before you sign any contracts or agreements make sure that you understand how the particular company you're considering hiring will get paid.

They may want to charge you a single flat fee upfront. They may charge a regular monthly fee. They may take a percentage of each monthly payment that you make through them. They may take a percentage of the total amount owed or a percentage of the amount that they're able to eliminate.

Watch Your Credit Report & Credit Score

The idea of being able to stop worrying about your credit, to stop receiving collections calls, and to simply make one payment a month and let someone else handle everything may sound enticing. But unfortunately it's not that simple.


You have to really understand what's happening and be on top of everything and everyone to make sure that they are actually doing what they say they're doing. Also keep in mind that different companies will take different approaches to easing the burden of your debt. Some methods can be downright deceptive.

Consider for example a debt management company that tells you to only pay them and to stop making payments and ignore all phone calls and letters from your creditors because they're handling things now and that "you don't have to worry about it anymore". 

What's really going on here? If they're handling everything... why would you receive any collections calls at all? The answer is that it can actually help in their negotiations later on by making you look more desperate than you really are.

Let's say that a fictitious company called Debt Managers tells you to stop making payments to your credit card company, Credit Card Co. For the 

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next 4-6 months Credit Card Co. receives no payments from you at all.

Perhaps you're told that you're paying Debt Managers for their service during those first few months or that you're being given a chance to "catch up" and starting saving a little. Again, there are some companies out there that can be outright deceptive in their practices.

Either way Credit Card Co. doesn't know what's going on other than the fact that you're not making payments to them. So they report you as being late on your credit report and dock your credit score several points. They even hire a collections agency to track you down. You dutifully ignore them just as you were told to do by Debt Managers.

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This leads Credit Card Co. to believe that you've decided stop making payments. They start to wonder if you'll ever make another payment or if they'll be forced to choose between taking the loss or continuing to spend more money to go after you.

It's then when things seem the worst that Debt Managers steps back into the picture. Debt Managers calls Credit Card Co. (now 4-6 months later) and explains that you've fallen on some difficult times but want to make things right. They explain that you won't be able to pay the full balance due, but that you are willing to pay a percentage of what you owe.


Just a moment ago Credit Card Co. thought they'd likely end up with nothing. Now they're being offered the chance to be able to collect a fraction of what you owe. They agree to the plan because collecting say $6000 on a $10,000 debt is better than nothing. Debt Managers then calls you to brag about how they just "saved" you $4000.

But in the process you now have late fees that have accumulated, a possibly higher interest rate charged as a penalty, negative "past due" marks on your credit report, a lower credit score, and the possibility of creditors having written off your debt as a loss which would be an even bigger hit to your overall credit. So, how much did Debt Managers really help in the end?

There's another common practice that you may want to look out for as well. When you make those monthly payments to the debt management company they typically hold your money in their own account until the last possible moment before paying your creditors.


Television and radio personality and public advocate for eliminating debt, Dave Ramsey, adamantly warns on his website that, "When you use one of these companies and then try to get a Conventional, FHA, or VA loan, you will be treated the same as if you had filed Chapter 13 bankruptcy".


In short, while the right company can be helpful in the right situation, there are a lot of things that could go wrong and so you need to be on top of things and fully understand what you're getting into.


Your credit report and credit score are important and determine whether or not you can get a loan and what interest rate you'll pay on that loan. It can also impact your ability to get a house, a car, an apartment, and even a job. You can always improve your credit, but it's not something that will happen overnight. In fact it's a process that can take several years. How do you plan to manage in the meantime?

Don't Forget Your Taxes

Just when you thought you caught a break, whether you went through a debt management company or did it yourself, the settlement that was reached and intended to help your financial situation, just may end up costing you.

That's because when a creditor wipes away any debt that you owe it could be deemed taxable income. In other words, the amount that was excused or dismissed may be treated just like money you earned by working; and

something that you could be expected to pay taxes on.

So imagine for example owing $30,000 that you can't afford to pay back. You hire a reputable, trustworthy, dependable, and legitimate company after weeks of research and are excited to hear that they were successfully able to reduce the amount you owe from $30,000 to $20,000. Later on, you open the mail one day only to discover that you owe taxes on the $10,000 difference. While this may be possible, every situation is unique, and we encourage you to speak with your tax advisor about your ow situation. In fact, you may want to speak with your tax advisor before any settlement arrangements are made.


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Where to Find Help

Where to Find Help

If you're still interested in using a debt management company, then we encourage you to do some research before hiring anyone. Learn what you can about the industry, what questions to ask before you sign a contract, and how you will likely be charged you their services. Consider using known and respected sources such as CNN or Nolo.

Two specific resources that you may find helpful are the Financial Counseling Association of America and the National Foundation for Credit Counseling. The FCAA offers a directory of member agencies and a search by state option, while the NFCC allows you to search for certified counselors and accredited member agencies.

Credit counseling agencies (which are not the same as debt management companies) may also be more inclined to provide financial counseling and education as opposed to focusing strictly on reducing the debt you owe and charging a fee for that service. Many of these agencies are also nonprofit organizations.

If you have a credit union or an employee assistance program through work, they may offer you the chance to speak with a financial advisor for free. Alternatively, you may be able to find someone in your area speaking at a public library or through an agency such as The National Association of Personal Financial Advisors or the Certified Financial Planner Board of Standards. Certified Financial Planners are some of the most

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respected and highly educated individuals in their field.

Public personalities such as Dave Ramsey and Suze Orman can also provide a wealth of information.

The Better Business Bureau is also a useful tool in looking for the experiences that others have had with a particular company. Keep in mind, that you may need to use the BBB location that is local to the company you're investigating and not the BBB that is closest to where you live.

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