What Is Debt Management Plan Commonly Offered by Credit Counseling Agencies?

Debt management is a service that is provided by credit counselling agencies.  What the credit counselling agencies do on the debt management plan is to renegotiate with your creditors and set up a contract with the newly negotiated terms.  The new negotiated terms usually involve a low rate of interest and a waiver of other charges such as late fees and financial charges.

One of the main reasons why creditors are willing to work with consumers through a debt management plan is that reputable credit counselling services only and roll those consumers in a debt management plan for genuinely facing a financial problem and are unable to repay the debt under the current terms of interest.  What a credit counselling agency does first of all these carefully overview your financial situation along with the details of your debt and financial resources.

Only after it determines that you cannot pay off your debt by following simpler methods like budgeting and conserving your spending is does it recommend including you for a debt management plan.  Because reputable and legitimate credit counselling services to not abuse the trust of the creditor by negotiating with them for a consumer who could have paid off the debt under the original terms of the contract just by saving on surplus expenditure the creditors are willing to renegotiate and lower the rate of interest when you are a part of a debt management plan through a good credit counselling agency.

What To Do and Not When Looking For A Credit Counseling Agency

Millions of Americans seek the help of credit counseling services in order to combat their overburdening debt situation. When the security of their financial situation is on the point of capsizing due to unpaid debt, a credit counselor can help manage this situation. Specially in the scenario where you cannot manage your own debt and do not know what to do, a credit counseling service can guide you in the right direction. In an ideal situation the legal and Gen. and nonprofit credit counseling service can do the following for you:

  • It can reduce the amount of money that you owe on the debt as much as 50% by never sheeting with your creditors.
  • A credit counselor can help you manage your debt simply by creating a budget for yourself. Nothing could be simpler and takes the least amount of time.
  • A credit counseling service can enter you into a debt management plan where it disperses payment on your behalf to all your creditors.

As many advantages as they might be to using a credit counseling service, you should keep a few important things in mind. We have discussed how to test a credit counseling service to make sure that it falls 100% true on being a nonprofit credit counseling service in the previous post. Here we will discuss some do’s and don’ts of finding a credit counseling agency to help you.

 

Do Not Get Taken in by Flashy Advertisements It won’t be uncommon for you to find several advertisements for credit counseling agencies in newspapers, television, radio and even in your e-mails. Do not get taken up by these and see advertisements that you see. Do not get enticed to take up our credit counseling agencies offer just because you have seen the advertisement but rather go to them when you need dictates it. Most of the estimate and reliable credit counseling services depend upon word-of-mouth and recommendations from the prior plans to get future clientele. Flashy and in-your-face advertisements are the tools of commercial enterprises who might not necessarily hold your best interest in mind, which brings us to the second point.

Make Sure That You Are the Priority When Peeling with a Credit Counseling Service Make sure that the credit counseling service has your best interest in mind. Many so-called nonprofit credit counseling services will do their best to a make a profit out of your financial strife by telling you that enrolling in a debt management plan is the only option. No one solution fits all circumstances. So recklessly and pulling people in debt management plans regardless of their personal situations is a trademark off a credit counseling agency that is working for you their own profit rather than to help you out.

Get the Details for Your Debt Management Program when enrolling yourself in a debt management plan get all the necessary details. Find out what is going to be the method of payment and when will the payment get disbursed to your creditors every month. You should get a written statement regarding all fees and charges. Credit counseling services are required by law to present you 100% transparent statement of all charges involved. They cannot slightly take away a percentage cut from the payment that you make for your creditors.

Do not be pressured into making a Decision Take your time to decide which credit counseling service to work with. When working with a credit counselor will not be pressurized into making a decision that involves joining a debt management plan etc.

Get the Time Estimate of When You Will Be Debt Free Get an estimate of the time that the credit counseling service aims to make you debt free by following the debt management plan. Mostly a debt management plan aims to get you free from debt in the next 2 to 5 years. If your credit counseling agency cannot manage to do this then they are probably wasting your time.

Make Sure the Credit Counseling Service Is Doing a Good Job of Negotiating with Your Creditors If you want your payments to be reduced, late payment charges to be waived, a credit counseling agency can do this for you. You might have to consider debt management programs and debt settlement. Make sure that the credit counseling agency is doing this for you.

Get Regular Statements of Payment Disbursement from the Credit Agency Make sure that your credit counseling service gives you a regular statements of the disbursement of payment that its making to your creditor.

Make Sure That the Credit Counseling Service Offers Continued Support Even when the credit counseling session is done or you haven’t told in a debt management plan, reputable credit counseling services will continue to offer you support toward long-term election ship by offering you credit education and assistance. Many reputable credit counseling agencies also offer free workshops and credit education classes.

Checklist before you get Credit Counseling

It is true that whatever services credit counseling can provide you, you can do them yourself. Theoretically at least. It can be hard to pay off debt once debts have gone beyond a certain limit. Living constantly under the burden of debt and not being able to put the money your earn for your needs because of you need to pay off debt is a stressful state to be in. getting the professional help of a credit counseling service may be the answer to your problems.

Ask yourself the following questions to decide whether you need a credit counseling service.

Do you have a legitimate credit counseling service available?

This is the foremost question that you will need to ask yourself. Whether or not you can take the services of debt counseling will greatly depend on your finding a legitimate non-profit credit counseling service around your local area. If you put your money matters into the hands of a service that does not provide you with legitimate and worthwhile services you could end up wasting your money & time. That would be the last thing you need when you’re already and debt.

Next thing to consider is whether you can do the whole process yourself. As mentioned before technically a consumer credit counseling service cannot provide a service that you cannot perform yourself. However it is a universally accepted fact that a professional credit counseling service will be better at negotiating your lenders and approving better terms and conditions for repayment of the loan. Also enrolling in debt management plans is a service that is pretty much exclusively offered by credit counseling services.

Effect on the Credit Score

It is common it is now for some of the major lenders and banks to not look unfavorably upon a person who is in a credit counseling program or who is using debt management programmes to pay off his debt. Taking the services of a credit counseling service is considered to be a sign of a person taking an effort to repay his debt. However you must speak to the credit counseling service and ask them about how they are going to vote your accounts to the credit bureaus. You can also speak to your creditors individually as to how they are going to report your account if you use a debt management plan to pay off the debt.

What are your options with a credit counseling service?

Typically a legitimate credit counseling service offers more than one option to help you take care of your debt problems. For some people good credit management advice along with financial planning with a carefully devised and well-planned budget serves the solution for getting out of debt. Debt management program should not be the only option that a credit counseling service offers. Debt management is usually undertaken if you and your credit counselor come to the conclusion that your debts cannot be paid off just by careful budgeting no matter how you crunch the numbers.

Insuring regular payment to creditors

It is crucial as part of a debt management plan that your creditors be rate on time. A creditor can cancel the debt management plan if one or two payments get missing or a delayed. Excellent you need to ensure that the payment schedule that the credit counseling company comes up with is affordable to you. The point behind taking the service of a credit counseling services to provide for a better negotiations and resulting repayment terms and conditions that lesson your monthly burden enabling you to pay off your debt. If the credit counseling company cannot come up with a repayment plan that you feel you can afford than it may be fruitless entering into it because you may end up defaulting on the debt management plan which will put you back in the same place that you started.

What are the charges?

The fees charged to the credit counseling cover service should be reasonable. Many of them also make an income from what is known as fair share. Fair share is the portion of the payments that the creditor of this back to the credit counseling service as an incentive for recovering his money from the borrower through the debt management plan.

Monthly statements of accounts

No matter what, you should stress the points that you need to be provided with monthly statements of your accounts that is the credit counseling services dealing with. You should keep a check that all your creditors are being paid on time every month.

What is the cost of credit counseling?

The first thing is to find yourself a legitimate credit counseling agency. You can do this by reading our post, “how to find a legitimate credit counseling service”.

Even though they call themselves a non-profit credit counseling agency, getting yourself enrolled in a debt management plan may have its costs. They may take your first monthly payment as a fee or state a fixed fee for the services rendered. Many credit counseling services also make an income from what is known as a ‘fair share’. Fair Share is what they get from the creditors for the money that they get to recover through their services every time that a consumer joins a debt management plan.

Many credit counseling services offer credit education and management advice for free They might charge you a minimal fee for making a budget plan for you that will help you pay off your monthly debts. This could cost your anywhere from $5-$15.

In case of debt management it could be as high as 20% of the total monthly installment. Anything higher than that and you should look elsewhere.

Outline of credit counseling

Credit counseling is a service that a person can seek to manage his debts. It can be an alternative to bankruptcy.

There are many things that a legitimate credit counseling service can do for someone facing difficulty in paying off his debts.

First, a credit counseling can provide education and be a guide to better finance management. The legitimate credit counseling services offer advice to the consumer about handling and managing credit.

Secondly, a credit counseling agency also provides help with planning a budget for the consumer. Sometimes all that a consumer needs in order to pay off his debts is a carefully made and well devised financial plan. A credit counseling service does this by examining the financial details of the consumer. A consumer provides all details of his income, expenses and financial liabilities to the credit counseling service. The credit counselor then compares the income to the debt and comes out with a budgeted financial plan that allows the consumer to utilize his income better in paying off his debts while continuing to leave enough resources for his monthly expenditures.

Thirdly, a credit counseling agency can also negotiate with the creditors on the behalf of the consumer. Technically, a credit counseling agency cannot do anything that the consumer cannot so himself. However, as they are a professional outfit, they are likely to have more experience in negotiating which means that they might be able to negotiate better terms and conditions for a consumer than he could himself. Many people enjoy the convenience of letting someone professional handle the negotiations. In order to do this a credit counseling service may enroll you in a Debt Management Plan. Under this service they will negotiate with all your creditors and try to get you better terms of repayment. You will be required to make a single consolidated payment to the credit counseling service every month that they will disburse to your creditors.

Reasons for Reducing Debt

Here are just some of the reasons why you should plan on becoming debt free as soon as possible. Getting yourself out of debt needs motivation and dedication. If you stop to consider all the benefits that you will derive others being debt free than perhaps you will be able to work harder in achieving that goal. Here are just some of the benefits that you will reap after having it off your debts, the few among many advantages of paying off your outstanding bills

1) Getting financially secure – Paying off your debts make helps you save more. As long as you are under a lot of debt you will find it difficult to put away money for your financial needs of the future. Getting out of debt will allow you to start saving for your retirement plan or your child’s education or any other future expense that you need to plan for.

2) Reduce stress – being under debt is stressful even if you believe that you do not think about it consciously. Being under debt is never good for self-image and self-esteem. Plus those calls from collection agencies are a constant source of tension.

3) Improve your credit score – the best way to improve your credit rating is by in of all your unpaid debt. Till the time that unpaid debts remain on your credit what you will find it impossible to increase your credit rating. Pay off your debts and improve your credit rating to enjoy all the benefits of a better credit score such as low interest rates, availability of credit ease of, getting various services etc.

4) Do more with your money – getting out of debt allows you to use your money for the things that you really want to. Getting out of debt will allow you to channel lies your income towards accomplishing your short-term and long-term financial goals.

5) Own your own assets — only after you have paid off the amount on your mortgage or automobile loan due get to own the asset. The time you are ringed installment on debt it is a creditor who owns it. So pay off your loans and debts and become the owner of your own assets.

Teach your children good credit habits — by improving your own credit situation and handling your debts responsibly you’ll teach your children similar good credit habits which could be crucial to their financial security in the future.

Revocation Of Non Profit Status Of Credit Counseling Agencies By IRS

Certain states in the United States of America need a non profit status to operate as a credit counseling agency, including Maryland. The internal revenue service (IRS) has in the past revoked the non profit status of several of the major credit counseling services. While many small ones have had their status revoked as well, a handful of the larger ones comprise more than half of the credit counseling provided nationwide.

What steered the investigation by the internal service revenue into the functioning of the credit counseling services were various complaints about dubious practices. It was claimed that many so-called non-profit credit counseling services were charging higher fees by cloaking them in mandatory voluntary donations and hidden charges. It was also a matter of concern that whether or not the credit counseling services were providing ample credit education to the consumer which is meant to be one of their primary and agenda for functioning.

This investigation by the IRS has led to instability in the credit counseling field owing to the fact that a large portion of their funding comes from the creditors as what is known as fair share. Fair share is the commission based on the money recovered by a credit counseling service for the creditor by enrolling the consumer into debt management plans. Several banks and credit card companies insist on the credit counseling service having a non-profit status before agreeing to pay them the fair share. Revoking the non-profit status for credit counseling services at jeopardize a major source of the funding.

Since many counseling agencies have had to close doors owing to their non-profit status being revoked it has also created uncertainty in light of the amendment made to the bankruptcy law. It is now mandatory for a consumer to go through a bankruptcy counseling from a legitimate credit counseling service before the bankruptcy can be filed and discharged. Since it is all together not clear what the criteria for a credit counseling service to maintain a non-profit is, many agencies are no longer sure as to whether their non-profit status will be revoked in the future.

Also with more and more credit counseling agencies having to close down their business there is also the question as to whether they will be enough credit counseling agencies left to service the consumers.

In the light of the recent new occasions of non-profit status was several credit counseling agencies the only way a consumer can know whether the credit counseling service is a non-profit entity or not is to check through the evocation listing that the agency periodically posts, unless of course the agency itself makes the information public.

FTC Testimony about Credit Counseling Abuses

Paying bills is never an easy task. It becomes even more difficult when a person finds himself in unfavorable situations due to illness, loss of the job, failure of business etc. Credit counseling agencies are meant to assist consumers who are facing problem with that by providing them with better education and assistance in financial management. The FTC has testified that although some credit counseling services do their job as they should, many use unfair practices to mislead the consumer as to who they are, what they do and how much their services are going to cost. Not only do they charge high fees as hidden charges and the so-called mandatory voluntary donations, they also misused the non-profit status in order to win over the trust of the consumer as well as to take advantage of tax exemptions. It is suspected that many non-profit agencies are many fronts used to funnel finances to their several for profit affiliates.

Instead of considering all possible methods in order to help the customer deal this debt such as credit education, financial advice and budgeting many credit counseling services indiscriminately into the consumer in debt management plan in order to fund their own requirements in the form of the commission is that they receive from the creditors on the money recovered which is commonly known as fair share.

There have also been complaints of deception, unfair practices about the services offered, poor implementation and management of debt management plans and undisclosed charges associated with debt management plans.

It is believed that the FTC’s greatest concern about the unfair practices being conducted by certain credit counseling agencies is about the true nature of the costs involved in providing the service to other consumer.

It is possible that the credit counseling agency made deliberately delay the payments to a creditor or not payment all causing severe damage to the credit report of the consumer. The first few initial payments that the consumer assumes is going to as the creditor when he has enrolled himself in a debt management plan may go solely into the pockets of the credit counseling agency.

For consumers who are facing a dire situation a credit counseling service may also make tall promises of performing recovery tactics that under the umbrella of the law will be illegal. Promising to remove negative information from the credit report and consequently charging a higher fee for performing such a service is also a feature of one of the deceptive practices used by an ethical credit counseling agencies.

The credit counseling agencies that enjoys the status of a non-profit organization is also meant to comply with the FTC is Telemarketing Sales Rule which includes the National Do Not Call Registry.

“The commission has pursued a rigorous programme to halt fraud and deception by those who purport to be able to solve consumers financial difficulties”. According to FTC commissioner Thomas Leary (2006). The testimony listed several commission actions including a November 2003 lawsuit against a AmeriDebt a large Maryland-based credit counseling agency. It was alleged that while this credit counseling organization promotes itself as a non-profit and a completely free service they in fact regained the first payment is that the consumer makes towards a debt management plan as a fee for their own service without due notification and clarity of this system being presented before the consumer. In addition to AmeriDebt litigation Leary explains that the FTC is law enforcement efforts currently include several non-public investigations of credit counseling agencies. The commission’s testimony also mentions of February 2004 lawsuit against two debt negotiation companies (Innovative Systems Technology, Inc, and Debt Resolutions Specialists, Inc), September 2002 lawsuit against another debt negotiation company, Jubilee Financial Services Inc,.

 

The Federal Trade Commission and the internal revenue service have joined hands in combating fraudulent and scams or credit counseling services. They have also issued certain joint guidelines for consumers who were looking for a credit counseling agency to assist them with a debt situation.

The consumer should pay careful attention to the fee structure of the services being provided. Terms and conditions including the payment and the charges should be put down in a written contract which should be read carefully before signing.

The credit counseling agency should be willing to work with all your creditors and not just the one with which they have a fair share of treatment. Conversely, the credit counseling service should be of enough reliability and repute so that all your creditors are also willing to work with them.

Avoid the credit counseling agencies that offer one solution fits all in the form of debt management plans. It is a fact that many consumers can manage their debt just by the help of ample credit education and financial management. The legitimate credit counseling services provide both financial education and budgeting helped to the consumer.

Common questions about National Foundation for Credit Counseling (NFCC)

The National Foundation for Credit Counseling is a nationwide network of non-profit credit counseling agencies that provide a range of services such as money and credit management education, confidential budget, credit and it counseling, that management plans, bankruptcy counseling and education, mortgage delinquency counseling and homebuyer education. The counseling is delivered by certified consumer credit councilors who have two past third-party councilor certification exams in order to ensure their knowledge and expertise in the financial area.

The following are some common queries regarding the National Foundation for Credit Counseling. What are the benefits of working with her certified consumer credit councilor?

A certified consumer credit councilor has to pass through a rigorous battery of tests to ensure that they possess enough knowledge and expertise to tailor confidential programmes to meet your specific needs.

How is counseling available?

The National Foundation of Credit Counseling offers counseling in person, by mail, online and through the national toll free hotline (1 — 800 — 388 — 22 27).

What happens when you contact an affiliated agency?

When you contact the credit counseling agency will be advised on the information that need to provide for counseling session. You will be able to take back whatever documents you provide and receive professional counseling help in person, by phone, by mail or online.

How are agencies funded?

A majority of the funding of the counseling agency comes through the creditors who participate in the debt management plans and voluntary donations. Local grants from private sources and foundations along with client fees also contribute to the funding of the agencies.

What do the NFCC members and affiliated counseling agencies charge for the counseling services?

The fees associated with the services provided to a consumer varies for each consumer. However a majority of the basic trouncing services are provided for free or at a very low cost.

Will the credit counseling stop legal action and collection phone calls?

Since in most cases the credit counseling agency is able to work with the creditor towards repayment that may stop any legal action by the creditor against you. Once you start making the payments on your debts the majority of collection calls are also liable to stop.

Why do creditors reduced payment working through the credit counseling agency instead of dealing directly with you?

A legitimate and genuine credit counseling agency evaluates the financial situation of the consumer carefully with the help of certified consumer credit councilors. Since a legitimate counseling agency will enroll a consumer in a debt management plan if that is the only option available the creditors trust the professionals at a credit counseling agencies to come up with the right financial solution. Since a credit counseling agency does not abuse the trust of the creditors by enrolling a consumer that could have paid off the debt under the current terms without the re-negotiation of interest rate, the creditors are willing to work with the credit counseling agency to find a solution to consumers that problem rather than risking a write-off of the debt.

Questions to Ask before You Start Working with a Credit Counseling Service Agency

These are the common questions that are asked to establish the legality and the genuineness of a credit counseling service before you place your finances on their hands.

Is the credit counseling agency affiliated with a nation credit union?

Is the credit counseling agency affiliated to any of the national credit bodies such as the AFCC ( American federation of credit counseling)? Being affiliated to a credit union mean that the credit counseling agency has to operate under stringent guidelines and rules.

Is the agency accredited by a 3rd party?

Being accredited by an accreditation body like the Council On Accreditation means that appropriate checks and balances are in place to safe guard your interest.

Is the agency a 501(c)(3) non profit organization

A no profit status is required for credit counseling agencies to function in several states. Being non profit means that the agency will be able to provide you with a majority of basic credit counseling services for no or very low fee.

What services does the credit counseling service offer?

The agency should offer services beyond enrolling the consumers in a debt management plan. A wide range of services such as housing counseling, pre-bankruptcy counseling, credit education, budgeting and financial planning.

What are the fees associated with the counseling?

A legitimate non profit agency will be able to provide you with several services at a low fee or free of cost. The agency should clearly specify the fee involved. Watch out mandatory voluntary donations.

What are the means of delivery?

Does the agency offer counseling over the phone, internet and face to face? Most of them do.

Is the credit counselor assigned to you a certified consumer credit counselor?

Make sure that someone properly trained and informed is assisting you with your counseling. Accreditation with NFCC means that a counselor has to pass tests before they can be certified as fit to be a credit counselor.

Does the agency provide credit education and workshops?

A good credit agency might make it a mandatory process to be a part of a credit education workshop in order to assure that you remain debt free in the future.

Will the agency work with all your creditor?

A credit counseling agency receives a majority of its funding from the creditors from what is called the fair share. Fair share is a percentage of the amount that the creditor recovers from the consumer as payment from a debt management plan. The credit counseling agency should be willing to work with creditors with whom they do have a fair share agreement with as well.

Is there a minimum amount of debt involved?

A good credit agency will not a set a limit on the debt owed below which they will not assist the consumer.

What are the debt management options available?

Debt management plans are not required by all the consumer. A credit counseling service should be wiling to offer you a budgeting and financial planning service if that is sufficient help for you to get out of your debt.

Do the counselors receive incentive to write debt management plans?

The counselors should not be independently rewarded for getting consumers in to a debt management plan.

How long will the counseling session last?

The counseling session should be long and comprehensive enough for the agency to grasp and evaluate your finances properly before giving you the appropriate solution. Agencies that promote drive by counseling may only be interested in enrolling you for debt management plans or charging you a high by making tall and exaggerated promises.

Will the agency take on the payments in a debt management plan with immediate effect?

There should be no gap between the time that you stop paying your creditors and the agency takes over the payment in a debt management plan. No payments should be delayed or missed.

Does the agency pocket the first or the first few payments as fee?

A legitimate counseling agency will start disbursing the payment to your creditors right from the first payment. Some unethical practices involve the agency keeping the first few payments themselves as fee for providing the service without making the consumer aware of it. this will result in your accounts that are current being reported as late to the credit bureaus.

Is the credit counseling agency insured?

The credit counseling agency should be insured to safeguard the money you pay them against their own financial troubles.

Are there many complaints against the agency?

Check the website of the Better Business Bureau and the local offices of your state’s attorney general. While you can expect to find complaints most of them should have been resolved to the satisfaction of the consumer.

Is the counseling session confidential?

Most of the legitimate credit counselling agencies including the ones that are affiliated to The National Foundation of Credit Counselling guarantee absolute confidentiality and privacy. Your financial situation should not be discussed beyond the people involved in assisting you and all your records should be maintained in secure facilities.