Industry Tips
Debt Management Plans
Debt Management Plans are personalized, structured repayment
programs ran by credit counseling agencies. Credit counselors can advise you on
how to use credit wisely, help you establish a workable budget, keep track of
your bills and arrange repayment plans with your creditors.
If you decide to enroll in a debt management plan, it is important
to spend time researching options and choosing a reputable agency. When
choosing a credit counseling agency, BBB recommends:
Carefully evaluate advertisements. Big
advertising budgets don't always equal a good agency. It is wise to ignore
phone calls or e-mails that arrive out of the blue from credit counselors
offering their services.
Interview several agencies. Ask
friends or relatives who they would consider if they needed budgeting advice.
You can also research agencies with BBB to see if there have been any issues or
complaints. Get a list of members from the National Foundation for Credit
Counseling or the Association of Independent Consumer Credit Counseling
Agencies.
Find a licensed and accredited agency. Many
states require that a credit counseling organization register or obtain a
license. Make sure the agency you hire has met all state regulations. Look for
agencies that are members of the NFCC or AICCCA, since members of both
organizations must adhere to strict standards and be certified.
Consider the qualifications of the counselors. Try
to select an agency whose counselors are certified by an outside organization.
You also want to ask how the agency employees are paid. Steer clear of
organizations that pay employees by commission.
Have a clear understanding of all services. Will
the counselor tailor a plan to fit your personal needs? Will all your
information be kept confidential? Know the privacy policy as well as the
security practices. Seek an agency that offers a range of services, including
education and debt repayment.
Ask how the agency is funded. Most
credit counseling agencies are partially funded through voluntary contributions
from creditors who participate in Debt Management Plans. If the agency claims
to be tax exempt or non-profit, double-check with your state charity official.
Bear in mind that your creditors should always be credited with one hundred
percent of the amount you pay through a credit counseling service.
Get verbal promises in writing. Only do
business with agencies that offer formal written agreements or contracts.
Carefully read all the terms. The contract should include the services to be
performed, payment terms, counselor name and contact information and business
name and address.
Know the fees. If there are fees, the
agency should explain what they are based upon. In general, you should not pay
more than $75 in set-up fees or make a monthly payment fee that exceeds $40.
Monthly payment fees are subject to state law. Ask if the agency waives or
reduces fees for those who are financially destitute.
A successful debt management plan generally takes 30 to 60 months
to complete. Understand that you will be expected to agree to not apply for any
additional credit and not incur any additional debt while you are participating
in the plan. Once enrolled in a plan, the agency should provide regular
statements showing how your funds were distributed.
The FTC issued a rule to protect consumers
who are in credit card debt. Starting on October 27, 2010, for-profit companies
that sell debt relief services over the phone are no longer allowed to charge
fees before they settle or reduce a customer’s debt. This rule does not apply
for non-profit organizations, but does cover those that falsely claim
non-profit status. Before the consumer signs up for a service, the agency must
disclose: how long it will take to see results, the full cost, negative
consequences that could result from using the service and information about
dedicated accounts.
