Debt Management Basics
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FAQ about debt and credit counseling

Here's why. Often, a debt-negotiating company will tell you to stop making payments to creditors and to send money to them instead. The money gets placed in an account until the debt negotiator decides to make an offer to a credit card company. It could be several months before a debt negotiator has collected enough money from you to make a settlement offer to a creditor.

And after several months of not paying your creditors, your credit will be trashed. Not all debt negotiators are on the up and up. Some consumers pay high fees and never get any of their debts settled through a debt negotiator or debt-settlement company. Contact the Better Business Bureau to see if the firm has had any consumer complaints. Check with your state attorney general's office or other state consumer agencies to find out if there are any pending legal investigations.

Are these e-mails that promise to eliminate my debt for real?
No. Your debt is your debt -- end of story. There is not a magic wand to wave away your debt problems. Some of these companies say that they have found a way around the law -- but if this were true, all credit card companies would be out of business. Other companies will promise to negotiate with debt collection agencies to get your debt reduced. But you can do that yourself -- no middleman required.

How long will it take me to pay off my debt?
It depends on the interest rate you are paying and how much you can pay out each month. The more you pay, the quicker the balance disappears. For example, if you paid only the minimum amount due on $8,000, which is the average amount of individual household credit card debt, at an average annual percentage rate of 13.9 percent, it would take 278 months to be rid of your debt. In that time, you will pay $6,792.25 in interest. If you added an extra $100 to the payment each month the savings are dramatic. It would be paid off in 33 months, and would cost you $1,639.13 in interest.

Use this Bankrate calculator to figure out how long you will be paying off your debt.

Will debt-counseling affect my credit?
Using a debt-management plan to pay off debt won't hurt your credit score, but it may make it difficult to qualify for new credit.

When you enroll in a debt-management program, you write a monthly check to a credit-counseling agency and the agency pays your creditors. A debt-management plan usually lasts three or four years. A comment stating that you're paying an account through a credit-counseling agency appears on your credit report and remains until the account is paid in full. Such a comment won't hurt your credit score in the least.

However, if you get involved with a debt management agency that is late making payments to your creditors -- or doesn't make any payments at all -- your credit will be damaged.

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