Debt Management Programs
If you go out on the Internet looking for DEBT REPAYMENT info, you need to know that there are only two basic kinds of programs and that they are for unsecured debts. There’s a lot of confusion about them because some agencies purposely misrepresent the service they’re offering. Sometimes that withhold important information you need to know. Both kinds of programs are often called DEBT CONSOLIDATION but they are NOT for the same situations. You need to know the difference.
Make A Way Ministries recommends both of them but ONLY for their respective situations. Let’s start with their CORRECT names:
DEBT MANAGEMENT PROGRAMS
DEBT SETTLEMENT PROGRAMS
A Debt Management Program (DMP) is also called correctly DEBT CONSOLIDATION or CREDIT COUNSELING. DMP is designed for consumers who have started having trouble making their monthly payments on time but BEFORE those accounts have gone into COLLECTION which is usually after about 120+ days past due. Almost all of the agencies offering this service are non-profit organizations that are paid by the consumer’s creditors.
Many agencies also charge fees to their customers of varying amounts so you may want to shop around to find the best arrangement for your family. The fees generally take two forms: an upfront Enrollment Fee ranging from $50-100 and a monthly Maintenance Fee from $20-50 depending on the number of creditors to be included in the DMP.
A DMP Agency makes a repayment arrangement with each of your creditors and most creditors agree to reduce their interest rates for the duration of the program which on average is about 5 years. The concessions obtained from creditors by any particular agency are essentially the SAME as any other agency can obtain because creditors are not allowed to discriminate in their concession-granting among the various agencies.
In addition to shopping the fees charged by the agencies, you should also ask about how the agency handles your first month’s payment. Will it be used to pay your creditors or will it be paid to the agency as an additional fee? The creditors don’t like for consumers to skip that first month’s payment by allowing an agency to take it as an abusive additional fee that’s not necessary and is not charged by the vast majority of non-profit agencies.
Probably more than half of your creditors will report to the credit bureaus that you’re involved in a counseling program which will appear on your credit reports. But this is better than having continuous and unresolved late payments on your credit reports. Also, if you remain on a current status in your Debt Consolidation Program your creditors will NOT bring a legal action against you.
At the end of five years you will be out of debt if you have made your payments and avoided developing new creditors.
Before going out on the Internet, we recommend that you purchase what will turn out to be a valuable resource for the rest of your days:
Debt SmashDown: Repayment Strategies that Succeed