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Credit Counseling Services and Debt Mangement Programs (DMP)

Living paycheck to paycheck? Worried about agressive credorts calling you night and day? Do you have a variety of bills that you just can seem to pay each month, let alone save any money for retirement? If this sounds familiar, you may want to consider a credit counseling service, a Debt Management Program or both.

Difference between Credit Counseling and Debt Management Programs.

These two services are often confused as being one in the same, however they are distinctly different.

Credit counseling services are more of an "advice" service, they counsel you on how to manage your money. They develop budget scenarios for you based on your income and expenses and can even provide financial education courses to help you navigate through the world of money management. This is done in order to evaluate what type of debt relief is needed, if any, and provide you with a workable budget to pay off your debts on your own. If your situation is severe, they may recommend that you use a debt management service.

Debt Management Programs are a type of service that helps you adhere to the recommened budget and payment schedule given by the credit counseling service. The debt management company normally has pre-established relationships with credit card companies and other creditors that allow them to reduce interest rates, over the limit fees and late fees.

Many credit counseling services offer offer the debt management program in conjuntion with their counseling service, so you don't need to find two companies. One company can take care of both functions.

How a Debt Management Plan Works

If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan. A DMP alone is not credit counseling, and DMPs are not for everyone. Consider signing on for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still will help you create a budget and teach you money management skills.

Detailed Information on How a DMP Works
You deposit money each month with the credit counseling organization. The organization uses your deposits to pay your unsecured debts, like credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops between you and your creditors. Your creditors may agree to lower your interest rates and waive certain fees, but check with all your creditors to be sure that they offer the concessions that a credit counseling organization has described to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You also may have to agree not to apply for — or use — any additional credit while you’re participating in the plan. So you may not be able to take out a car loan, get a new credit card, or purchase a home while in a Debt Management Program.

Is a Debt Management Plan (DMP) Right For You?
In addition to the questions already listed, here are some other important ones to ask if you’re considering enrolling in a DMP.

Is a DMP the only option you can give me? Will you provide me with on-going budgeting advice, regardless of whether I enroll in a DMP? If an organization offers only DMPs, find another credit counseling organization that also will help you create a budget and teach you money management skills.

How does your DMP work? How will you make sure that all my creditors will be paid by the applicable due dates and in the correct billing cycle? If a DMP is appropriate, sign up for one that allows all your creditors to be paid before your payment due dates and within the correct billing cycle.

How is the amount of my payment determined? What if the amount is more than I can afford? Don’t sign up for a DMP if you can’t afford the monthly payment.

How often can I get status reports on my accounts? Can I get access to my accounts online or by phone? Make sure that the organization you sign up with is willing to provide regular, detailed statements about your account.

Can you get my creditors to lower or eliminate interest and finance charges, or waive late fees? If yes, contact your creditors to verify this, and ask them how long you have to be on the plan before the benefits kick in.

What debts are NOT included in the DMP? This is important because you’ll have to pay those bills on your own.

Do I have to make any payments to my creditors before they will accept the proposed payment plan? Some creditors require a payment to the credit counselor before accepting you into a DMP. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency.

How will enrolling in a DMP affect my credit? Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it can’t be done. Accurate negative information may stay on your credit report for up to seven years.

Can you get my creditors to “re-age” my accounts — that is, to make my accounts current? If so, how many payments will I have to make before my creditors will do so? Even if your accounts are “re-aged,” negative information from past delinquencies or late payments will remain on your credit report.

How to Make a DMP Work for You.
The following steps will help you benefit from a DMP, and avoid falling further into debt.

• Continue to pay your bills until the plan has been approved by your creditors. If you stop making payments before your creditors have accepted you into a plan, you’ll face late fees, penalties, and negative entries on your credit report.

• Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your DMP.

• Make sure the organization’s payment schedule allows your debts to be paid before they are due each month. Paying on time will help you avoid late fees and penalties. Call each of your creditors on the first of every month to make sure the agency has paid them on time.

• Review monthly statements from your creditors to make sure they have received your payments.

• If your debt management plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, make sure these concessions are reflected on your statements.

What to expect when you request information on Consolidation Help:

A Debt Relief Professional offering Credit Counseling will contact you. You will be able to ask any and all questions of your consultant about your debt situation. You will get a complete evaluation and a plan to solve your debt problems. If you should so chose to use a debt relief service you can approve the plan and start getting the help you need today.

Credit Counseling and Debt Management Source Information: Federal Trade and Commission FTC