A Word of Caution For People On
A Debt Management Plan
Reputable credit counseling organizations employ counselors who are certified and trained in consumer credit counseling, money and debt management, and budgeting. Organizations that are non profit 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 counseling. Others misrepresent their nonprofit status or fraudulently obtained nonprofit status by misrepresenting their business practices to regulators.
The Federal Trade Commission, 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 on a
Debt Manangement Plan
Organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a debt management plan, 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 debt management plan.
The FTC has found that some organizations that offer debt management plans 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 debt management plan, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your debt management plan. Once the creditors have accepted the debt management plan, it's 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 debt management plan if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.
If payments are late because the organization handling your debt management plan has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the debt management plan. 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 debt management plan, and asa result have “late” marks on your credit report.
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