© 2017 by SafeHarbor Financial Collaboration Services

  • Back to Civilian Life
  • James Robinson CFP

Debt Management Plans...DMPs


Debt Problems: For those with considerable debt problems, a financial counseling session is an effective first step to help you manage your finances better.

In some cases, and if appropriate, entering a Debt Management Plan can start you on the road to a financially stable, debt-free life.


Beware of Credit Repair Services

Debt Management Plans should not be mistaken for ‘Credit Repair Shops.’ The services are illusions. They prey on veterans and servicemembers. As a rule of thumb, Servicemembers and Civilians cannot remove derogatory history from credit reports if it’s true. It can only be removed if there are errors and fraud.


Great Advice from FTC

The Federal Trade Commission offers this stern but needed advice to consumers seeking such services. Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your entire financial situation with you and help you develop a personalized plan to deal with your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.


Once you've got a list of counseling agencies you might do business with, check each one out with:

  1. Your State Attorney General. Go here: https://www.naag.org/

  2. Your local Consumer Protection Agency. Go Here: https://www.usa.gov/state-consumer) Tip: They can tell you if consumers have filed complaints about any one of them. If there are no complaints about them, don't consider it a guarantee that they're legitimate. The final due diligence and decision fall on the consumer.

  3. The United States Trustee Program. Go here: https://www.justice.gov/ust Tip: They can provide a list of credit counseling agencies approved to provide pre-bankruptcy counseling.

Questions to Ask the Agencies You Contact

  • What services do you offer? Tip: Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes.

  • Do you offer information? Are educational materials available for free? Tip: Avoid organizations that charge for information.

  • In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?

  • Is there set-up and/or monthly fees? Tip: Get a specific price quote in writing.

  • What if I can't afford to pay your fees or make contributions? Tip: If an organization won't help you because you can't afford to pay, look elsewhere for help.

  • Will I have a formal written agreement or contract with you? Tip: Don't sign anything without reading it first. Make sure all verbal promises are in writing.

  • Are you licensed to offer your services in my state?

  • What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, by whom? If not, how are they trained? Tip: Try to use an organization whose counselors are trained by a non-affiliated party.

  • What assurance do I have that information about me (including my address, phone number, and financial information) will be kept confidential and secure?

  • How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I contribute to your organization? Tip: If the answer is yes, consider it a red flag and go elsewhere for help.

Debt Management Plans are not Credit Repair Schemes

A Debt Management Plan is a systematic way to pay down outstanding debt through monthly payments to a reputable credit counseling agency, who will then distribute these funds to your creditors.


Factors to Consider In Chosing a Debt Management Plan

By participating in a debt management program, servicemembers and veterans benefit from reduced or waived finance charges, fees, and fewer collection calls.


Avoid organizations that push a debt management plan (DMP) as your only option before they spend a significant amount of time analyzing your financial situation.


Generally, it takes approximately 36-60 months to repay debts through a debt management plan. Your accounts with creditors will always be credited with 100 percent of the amount you pay through agencies such as NFCC member agencies. Go here: (https://www.nfcc.org/) or Financial Counseling Association of America members. (FCAA) Go here: https://fcaa.org/


Debt management programs serve the dual role of helping you repay your debts while creditors receive the money owed to them. When you have completed your payments, the resultant payment history will help you reestablish credit.


Typically, you should not have to pay to simply meet with a credit counselor to discuss your situation, budgeting, or financial planning decisions.


Typical nonprofit agencies debt management plan (DMP) charge a one-time enrollment fee that is capped at $75 to $100.


Typical monthly administrative fee (DMP) that can be up to $50. The National Foundation for Credit Counseling average admin fee is around $28 in 2015.

Credit counseling agencies also receive money from creditors, known as “fair share fees.”

Credit card companies pay counseling agencies based on the amount they receive from the consumer.

The servicemember should be keenly aware that the Debt Management Program is a voluntary agreement between three parties; the Debt Management Counselor, the Servicemember, and the Creditor/Lender. Each party must fulfill certain expectations. If the not...the agreement is voided.

Other points to remember: Unsecured debts may be included in the plan.

Secured debt such as mortgages, home equity loans, and auto loans are not included.

Student loans typically are not included.


Pros

  • Most creditors reduce interest rates and eliminate late fees

  • Most creditors reduce your monthly payments

  • One consolidated payment for your unsecured debts

  • Benefits typically begin after 3 timely payments

  • Collection activity should stop quickly

  • Debt is repaid in full

  • Less negative credit impact than settlement


Cons

  • Some creditors do not participate

  • You may not take on any additional debt while on the program

  • You must make consistent monthly payments to ensure benefits continue


The process of shedding debt is like losing weight. It is not done overnight. Manage your debt and it will happen. A good time to start is now.