Here’s What You Need to Know About Debt Management Companies and Your Alternatives 

If you are an individual facing significant financial strain due to substantial debt, you are not alone. In fact, according to the U.S. Department of Labor, over 77% of American households are currently carrying some form of debt. TheManaging debt effectively is crucial, as the average American will accumulate a staggering $104,215 in debt over the course of their lifetime. (Source: Debt.org). With these numbers in mind, it’s no surprise that many people turn to debt management companies to help alleviate their financial burdens. 

What is a Debt Management Company? 

A debt management company is a business that claims to help individuals manage their debt by consolidating multiple debts into a single monthly payment. In theory, the company will then distribute these funds to your creditors on your behalf, attempting to negotiate lower interest rates or reducing the debt to make it more manageable. Essentially, these companies act as middlemen, facilitating your debt repayment process. 

The Truth About Debt Management Companies 

While the idea of consolidating debt into a single monthly payment may seem appealing, it’s important to understand the hidden pitfalls associated with debt management companies. 

First, in order to begin the process, you may be required to let your debts go into delinquency. This can have an immediate and negative impact on your credit score. AsManaging debt responsibly is key, as your credit report reflects delinquent payments, your creditworthiness will decrease, which can cause long-term financial challenges. 

Moreover, once your debts are settled, your credit report will likely indicate that the debts were settled for less than the full amount owed. This can be especially damaging, as creditors are not always willing to mark your debts as “paid in full,” even if you have fully settled with them. This marks your credit report with a negative settlement, which can hurt your credit score. 

Another critical issue with debt management companies is how they handle your monthly payments. Rather than sending payments directly to your creditors, the company will deposit your payments into a trust account. Only once a sufficient amount has accumulated will they begin negotiating settlements with your creditors. During this time, creditors that are not yet being negotiated with may begin pursuing legal action, including filing lawsuits against you. Debt management companies typically do not represent you in these lawsuits, leaving you vulnerable to judgments. 

A judgment against you can result in serious financial consequences. A creditor can garnish your wages, freeze your bank accounts, or even place a lien on your property. In Florida, judgments can remain on your record for up to twenty years, with the possibility of renewal. 

What Are Your Alternatives? 

At RAK Law, we understand the stress and uncertainty that comes with overwhelming debt. We offer alternatives to debt management companies by providing legal solutions that offer both immediate relief and long-term protection when managing debt. 

Chapter 7 Bankruptcy: A Fresh Start 

One of the most powerful tools available for debt relief is Chapter 7 bankruptcy, which, if you qualify, can provide several significant benefits for those managing debt: 

• Debt Relief: Chapter 7 bankruptcy can eliminate most unsecured debts, including credit card balances, medical bills, and personal loans. This can be an essential part of managing debt. 

• Stop Collection Efforts: Filing for Chapter 7 bankruptcy immediately halts collection efforts, including collection calls, letters, and wage garnishment. 

• Keep Your Property: You can typically keep your primary residence, vehicle, pension, and some personal belongings. More than 95% of Chapter 7 filers are able to retain their property. 

• A Fresh Start: Chapter 7 bankruptcy provides a clean slate, helping you rebuild your financial life. Once your debts are discharged, you’ll be eligible to apply for loans again, giving you the opportunity tofor startmanaging debt anew. 

Why Choose Legal Representation Over Debt Management? 

Unlike debt management companies, which expose you to risks such as lawsuits and negative credit marks, RAK Law offers legal protection throughout the entire process. We will work with you to ensure that judgments are avoided and that you are shielded from further financial distress. Our goal is to help you regain control of your financial future while managing debt. 

If you are struggling with debt, don’t settle for a solution that could leave you exposed to further harm. Contact RAK Law today to learn more about how we can help you through either bankruptcy or debt settlements, all while providing the legal protection you need to safeguard your future when managing debt.