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- Are your monthly bills larger than
what you can pay?
- Do you have difficulty paying your
bills on time?
- Are you having trouble keeping up with
multipe payment dates?
- Are you using cash advances or
borrowing money to repay another debt?
- Do you regulary get calls from bill
collectors?
- Can you only pay the minimum amount on
several credit cards?
- Are debts keeping you from buying a
house, car or saving for your retirement?
If You Have $2,500 or More in Unsecured Debt and At Least 2 Accounts, then You've Come to the Right Place ...
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For People on Debt Management Plans: A Must-Do List
Reputable credit counseling organizations employ counselors
who are certified and trained in consumer credit, money and debt
management, and budgeting. Those organizations that are nonprofit
have a legal obligation to provide education and counseling.
But not all credit counseling organizations provide these
services. Some charge high fees, not all of which are disclosed,
or urge you to make “voluntary” contributions that can
cause you to fall deeper into debt. Many claim that a debt
management plan is your only option before they spend time
reviewing your financial situation, and offer little or no
consumer education and counseling. Others misrepresent their
nonprofit status or fraudulently obtained nonprofit status by
misrepresenting their business practices to regulators.
The Federal Trade Commission (FTC), the nation’s consumer
protection agency, and some state Attorneys General have sued
several companies that called themselves credit counseling
organizations. The FTC and the states said these companies
deceived consumers about the cost, nature, and benefits of the
services they offered; some companies even lied about their
nonprofit status. Several of these companies are now going out of
business. Similar companies also may be shutting their doors,
even though they haven’t been sued by the FTC or the states.
That could be of special concern if you have a debt management
plan with one of these companies.
Must-Dos for Anyone With A DMP
Organizations that advertise credit counseling often arrange
for consumers to pay debts through a debt management plan (DMP).
In a DMP, you deposit money each month with a credit counseling
organization. The organization uses these deposits to pay your
credit card bills, student loans, medical bills, or other
unsecured debts according to a payment schedule they’ve
worked out with you and your creditors. Creditors may agree to
lower interest rates or waive certain fees if you are repaying
through a DMP.
The FTC has found that some organizations that offer DMPs 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 DMP, contact your creditors
and confirm that they have accepted the proposed plan before you
send any payments to the organization handling your DMP. Once the
creditors have accepted the DMP, 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 DMP if you
will be unable to make a scheduled payment, or if you
discover that creditors are not being paid.
You need to be aware that if payments to your DMP 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 DMP,
including lower interest rates and fee waivers. Although
creditors may have forgiven late payments that you made before
you began the DMP, the creditors may be unwilling or unable to do
so if payments are late after you have enrolled in a DMP. 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 DMP 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.
If Your Credit Counselor Has Gone Out of Business
What happens to your DMP 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 DMP
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 DMP is
going out of business you need to:
- contact your bank to stop payment if you are making your
DMP payments through automatic withdrawal.
- start paying your bills directly to your creditors.
- notify your creditors that the organization handling your
DMP 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
DMP.
- order a copy of your credit report. Check for late
payments — or missed DMP 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
DMP has failed to make scheduled payments, the consequences can
be just as devastating as if you failed to make payments to the
DMP. 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 DMP, and have
“late” marks on your credit report.
Important Questions to Ask When Choosing a Credit Counselor
If the organization you were working with shuts down, you may
be able to work a payment plan on your own directly with your
creditors. But if you decide that you need additional credit
advice and assistance, or if you are considering working with a
credit counselor for the first time, asking questions like these
can help you find the best counselor for you.
- What services do you offer?
Look for an organization that offers a 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. DMPs
are not for everyone. You should sign up for a DMP 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 DMP 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 DMP.
- 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.
- Do you offer free information?
Avoid organizations that charge for information about the
nature of their services.
- Will I have a formal written agreement or
contract with you?
Don’t commit to participate in a DMP 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.
- 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.
- Have other 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.
- What are your 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.
- 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 DMP. If the organization
will not disclose what compensation it receives from
creditors, or how employees are compensated, go elsewhere
for help.
- 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.
For More Information
The FTC publishes a series of free publications on credit and
financial issues, including Fiscal Fitness: Choosing a Credit
Counselor and Knee Deep in Debt. They are available at
ftc.gov/credit, or by calling toll-free: 1-877-FTC-HELP.
The FTC works for the consumer to prevent fraudulent,
deceptive and unfair business practices in the marketplace and to
provide information to help consumers spot, stop, and avoid them.
To file a complaint or to get free information on consumer issues,
visit ftc.gov or call toll-free,
1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC
enters Internet, telemarketing, identity theft, and other
fraud-related complaints into Consumer
Sentinel, a secure online database available to hundreds of
civil and criminal law enforcement agencies in the U.S. and
abroad.
Source: The United States Federal Trade Commission, December 2005
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