Brief Guide for Anyone Trying to Use A Debt Management Plan as a Way to Get Eliminate Debt
From time to time, any consumer may have problems paying their bills and need a little help to get out of debt. Credit counseling agencies can help consumers pay their bills through a debt management plan. Once enrolled in a debt management program, the consumer pays a specified amount of money each month to the credit counseling organization. The organization uses these payments to pay your bills, e.g. credit card, student loans, medical expenses, or other unsecured debts according to a payment schedule they’ve worked out with you and your creditors. The real benefit of using these types of program is that your creditors may agree to lower interest rates, or waive certain fees if you choose to repay your debt through a credit counseling service. Find out beforehand as typically the condition of using a credit counseling service may appear on your credit report.
You also need to be aware that not all credit counseling services are legitimate. The Federal Trade Commission (FTC) has found that some organizations offering debt management programs have deceived and defrauded consumers, and recommends that consumers check their bills to make sure that the organization fulfills its promises. If you are paying through a debt management program, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your debt management program.
Once your creditors have accepted the debt management program, it is important to:
- Make regular, timely payments.
- Always read your monthly statements promptly to make sure your creditors are getting paid according to your plan.
- Contact the organization responsible for your debt management program if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.
If payments to your debt management program and creditors are not made on time, you could lose the progress you’ve made on paying down your debt, or the benefits of being in a debt management program, such as lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the debt management program, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a debt management program. If you fall behind on your payments, you may not be able to have your accounts “re-aged” again (reported as current), even if you start a new debt management program with a new counselor. That means your credit report will have “late” marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off.
What to Do If Your Credit Counseling Service Goes Out of Business
A problem that faces consumers from time to time is what to do if the credit counseling company that managed your debts shuts down. A counseling agency that is going out of business may send you a notice telling you that your debt management program is being transferred to another company. Or it may tell you that you need to take some action to keep your financial recovery on track. If a government agency has filed an action against your credit counseling company, you may get a notice from a third party. If you discover that the organization handling your debt management program is going out of business take the following steps:
- Contact your bank to stop payment if you are making your debt management program payments through automatic withdrawal.
- Start paying your bills directly to your creditors.
- Notify your creditors that the organization handling your debt management program is going out of business. Consider working out a payment plan with your creditors yourself. Ask if they will give you a reduction on your interest rate without a debt management program.
- Order a copy of your credit report. Check for late payments — or missed debt management program payments — that may result from the company going out of business. If you see “late” notations you don’t expect, call the creditor immediately and ask that the notation be removed. Understand that they have no obligation to do it.
If payments are late because the organization handling your debt management program has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the debt management program. Even when using a credit counseling service, you are still 100% responsible for everything, especially payments. If you do not act quickly to make arrangements with your creditors, you could incur late charges that increase your debt, lose the lower interest rates associated with the debt management program, and have “late” marks on your credit report.
Important Questions to Ask When Choosing a Credit Counselor
If you decide that you need credit advice and assistance, these are questions that you should ask and have answered before making a selection:
1. What services do you offer?
This question seems obvious but often each agency will offer entirely different packages and arrangements. It is important you look for an organization that offers a broad range of services, including budget counseling, savings and debt management classes, and counselors who are trained and certified in consumer credit, money and debt management, and budgeting. Counselors should discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems now and avoid others in the future. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation. Debt management programs are not for everyone. You should sign up for a debt management program only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.
If you were on a debt management program with an organization that closed down, ask any credit counselor that you are considering what they can do to help you retain the benefits of your debt management program.
2. Are you licensed to offer your services in my state?
Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.
3. Do you offer free credit counseling information?
Avoid organizations that charge for information about the nature of their services.
4. Will I have a formal written agreement or contract with you?
Don’t commit to participate in a debt management program over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you are told you need to act immediately, consider finding another organization.
5. What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, which one? If not, how are they trained?
Try to use an organization whose counselors are trained by an outside organization that is not affiliated with creditors.
6. Have other debt management consumers been satisfied with the service that they received?
Once you’ve identified credit counseling organizations that suit your needs, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. These organizations can tell you if consumers have filed complaints about them. The absence of complaints doesn’t guarantee legitimacy, but complaints from other consumers may alert you to problems.
7. What are your credit counseling fees? Are there set-up and/or monthly fees?
Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you’re concerned that you cannot afford to pay your fees, ask if the organization waives or reduces fees when providing counseling to consumers in your circumstances. If an organization won’t help you because you can’t afford to pay, look elsewhere for help.
8. How are your employees paid? Are the employees or the organization paid more if I sign up for certain services, pay a fee, or make a contribution to your organization?
Employees who are counseling you to purchase certain services may receive a commission if you choose to sign up for those services. Many credit counseling organizations receive additional compensation from creditors if you enroll in a debt management program. If the organization will not disclose what compensation it receives from creditors, or how employees are compensated, go elsewhere for help. Make your interests #1.
9. What do you do to keep personal information about your clients (for example, name, address, phone number, and financial information) confidential and secure?
Credit counseling organizations handle your most sensitive financial information. The organization should have safeguards in place to protect the privacy of this information and prevent misuse.
