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Debt
Management Plans: A Must-Do List.
Consumer Facts For People
Reputable credit counseling organizations employ counselors
who are certified and trained in consumer credit,
money and debt management, and budgeting. Get mangement
plan information online. 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 śvoluntary”
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 managment plan business
practices to regulators.
The Federal Trade Commission (FTC), the nationĂs consumer
protection agency, and some state Attorneys General
recently took action against 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.
• Burdened with Debt
• Reducing Credit Card Debt
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 theyĂve
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. 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
youĂve 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 śre-aged” again (reported as current),
even if you start a new DMP with a new counselor. That
means your credit report will have ślate” 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 ślate” notations you donĂt 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
ślate” 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.
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.
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?
DonĂt commit to participate in a DMP over the telephone.
Get all verbal promises in writing. Read all documents
carefully before you sign them.
- 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?
- Have other consumers
been satisfied with the service that they received?
Once youĂve 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.
- 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.
- 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 counselng you to purchase certain
services may receive a commission if you choose
to sign up for those services. Many oline credit
counselling organizations receive additional compensation
from creditors if you enroll in a DMP.
- What do you do to keep
personal information about your clients (for example,
name, address, phone number, and financial information)
confidential and secure?
http://www.ftc.gov/bcp/conline/pubs/credit/debt.htm
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