Credit Counselors - Debt Management Plan companies - Things you need to know
Reputable credit counseling organizations employ counselors who are certified and trained
in consumer credit, money and debt management, debt consolidation and budgeting. Those
organizations that are nonprofit have a legal obligation to provide education and counseling.
But not all credit counseling organizations or debt consolidation companies 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 credit consumer education and
counseling.
Others misrepresent their nonprofit status or fraudulently obtained nonprofit status by
misrepresenting their business practices to regulators.
in consumer credit, money and debt management, debt consolidation and budgeting. Those
organizations that are nonprofit have a legal obligation to provide education and counseling.
But not all credit counseling organizations or debt consolidation companies 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 credit 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 or enter into a debt
consolidation program with one of these companies.
Steps To Take for Anyone With A Debt Management Plan
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:
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.
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 or enter into a debt
consolidation program with one of these companies.
Steps To Take for Anyone With A Debt Management Plan
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.
| This may be long, but it is important to people using a Debt Management Plan (DMP) |
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:
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 you decide to work with a credit counselor asking questions like these can help you find
the best counselor for you.
What services do they 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 they licensed to offer services in your 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 they offer free information?
Avoid organizations that charge for information about the nature of their services.
Will you have a formal written agreement or contract?
Don’t commit to participate in a DMP over the telephone. Get all verbal promises in writing.
Have documents mailed or faxed to you. 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 the 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 their 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 the 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 their employees paid? Are the employees or the organization paid more if you
sign up for certain services, pay a fee, or make a contribution to their 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 they do to keep your personal information (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.
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 debt 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 you decide to work with a credit counselor asking questions like these can help you find
the best counselor for you.
What services do they 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 they licensed to offer services in your 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 they offer free information?
Avoid organizations that charge for information about the nature of their services.
Will you have a formal written agreement or contract?
Don’t commit to participate in a DMP over the telephone. Get all verbal promises in writing.
Have documents mailed or faxed to you. 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 the 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 their 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 the 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 their employees paid? Are the employees or the organization paid more if you
sign up for certain services, pay a fee, or make a contribution to their 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 they do to keep your personal information (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.
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