We’ve been in business for over 50 years now (since June 17th, 1968) so we’ve heard about a million reasons why someone doesn’t want to sign up for a Debt Management Program even though they seem super interested and excited about it. The list includes a few common reasons such as:
- Monthly payments with Debt Settlement are less than the Debt Management Program. So, they decide to do Debt Settlement instead (we’ll talk about why this is a really BAD idea later on).
- The Debt Management Program is not saving them enough money each month. They have too much of a shortfall and can’t afford the monthly payment.
- Some of their creditors are offering promotional pricing still, and those creditors have to be left out of the program.
- They aren’t willing to give up using their credit cards for everyday purchases. The cards are closed by the creditor when the DMP starts and they won’t be able to charge anything new to the account.
- Upset that not ALL of their debt (such as student loans) can be put on the Debt Management Program. DMPs can only allow for unsecured debt such as credit cards. Secured debt like car loans, mortgages, etc. can’t be part of the DMP.
- They have been busy at (work, school, life, etc.) and have not had time to review the DMP signup paperwork.
- Applied for a personal loan or bank loan and they are waiting for the final decision.
- They are still researching all available debt relief options.
- Their (vacation, wedding, graduation, etc.) is a few weeks away. They want to start the program after that.
- They have a few other things that they would like to pay off first like a car loan or student loans.
What many people don’t realize is, that starting the Debt Management Program could actually help and assist with many of these reasons, and it’s not hard to get started. You can even complete your free credit counseling session online 24/7 from the comfort of your own home.
Then, all it takes is a brief 30-40 minute phone call with a certified credit counselor (this is a state law) to get started on the program. You’ll be given in-depth details about the DMP and how it works. If you decide that a DMP is right for you, the signup paperwork will be sent to you, and all you have to do is review the paperwork, sign it, and then send it back.
Let’s discuss a few of the above reasons why someone may not start a Debt Management Program:
(Monthly payments with Debt Settlement are less than the Debt Management Program) – While it might be true that your monthly payment on a Debt Settlement Plan could be less than your monthly payment on a Debt Management Program, the two debt relief options are very different and have totally different outcomes. There are many risks with Debt Settlement, and it could ruin your credit score for up to 7 years. What some people don’t know about Debt Settlement is that even though you are making a monthly payment to the Debt Settlement company, that company is not paying your creditors each month. They are saving the money in an account until the total sum is large enough to “settle with your creditors.” This can wreak havoc on your credit score and credit report. Your creditors will mark you as past due and may even “charge off” the debt and sell it to a collection company who could threaten a lawsuit if they don’t get paid. This can destroy your credit, and you’ll have a hard time building it back up. Also, that forgiven debt is taxable by the government because they see it as income. You will receive a 1099-C “cancellation of debt” tax notice. You’ll put this into your upcoming tax return as other income and will have to pay money instead of receiving a refund at tax time.
Debt Management Programs do not destroy your credit like Debt Settlement since your credit counseling agency pays your creditors on-time each month. Your credit score could drop just a little with a Debt Management Program because your creditors will close your account (so you can’t rack up more debt while on the program), but this is only temporary and once you start making those monthly payments on time your credit score will increase. You’ll be lowering your debt-to-income ratio, and this will also help to increase your score. Many people see a better credit score then they’ve ever had before once they are done with the DMP. You will not receive a 1099-C form because you’ve actually paid back all of your debt in full so there’s no “forgiven debt” to worry about.
(Debt Management Program is not saving them enough money each month) – Sometimes when someone completes our online credit counseling session, the system shows them that they wouldn’t really be saving any money each month by being on the program versus paying their creditors themselves. The system can only calculate what the user inputs so if there’s a mistake somewhere or something was left out or incorrectly chosen this can mess with the overall end results.
Also, when a person speaks to their credit counselor, sometimes the counselor can find better concessions and save them more money based on the person’s level of income, current financial hardship, and other personal and unique dynamics. Our online counseling system may not be able to include certain individual and situational factors that are unique to that consumer. That’s why it’s always necessary to speak to a certified credit counselor BEFORE anyone can begin a Debt Management Program. It’s also important to point out, that while on a Debt Management Program, it’s essential to keep track of your budget and how much you are spending. Some cutbacks or sacrifices might have to be made to make the program the best it can be and to get out of debt as quickly as possible. The more money you have to put towards paying down your debt, the faster you’ll be able to pay it off.
(Some creditors are offering promotional pricing and those creditors have to be left out of the plan) – This can be upsetting to some people because they don’t understand why the creditor denies enrollment in the DMP or why the counseling agency doesn’t think it’s a good idea to include that creditor on the program. Some creditors choose not to work with credit counseling agencies for one reason or another. They don’t have to allow someone to put that account on a DMP. If a creditor has given a client promotional pricing, let’s say 0% interest for 18 months on living room furniture for instance, it doesn’t make sense mathematically to include that account on the DMP because the interest is already at 0% and depending on the balance amount, it may not get paid off on the program until after 18 months which means the creditor could hit the client with unforeseen fees and a super high-interest rate.
A promotional plan gives the purchaser a reduced or zero percent interest rate on a specific purchase price IF the balance is paid in full by a specified future date. If the balance on the promotional plan is not paid in full by the expiration date of the plan, the creditor will add ALL of the accrued interest to your current account balance on that date. The accrued interest is calculated using the original higher interest rate on the original purchase price beginning from the purchase date through the date the promotion ended.
You can contact the creditor directly and try to pay the promotional balance before the expiration date to avoid additional interest charges. Carefully read your creditor statement because some creditors allow you to instruct them on how to apply your payments. You may be able to add the account to the DMP after the promotion period expires. So all is not lost because they could be added to the DMP later one. You would just have to pay that creditor on your own each month until then.
What is a Debt Management Program and how does it work? –
A debt management program is a set plan of activities and actions that an individual must take to lessen his or her debt. Many people confuse debt management programs and debt consolidation loans, but the two are total opposites.
When people who have huge debts start working with an agency offering services to manage their debts, the agency will be contacting their client’s creditors and try to reduce the monthly payment amount and get other concessions that will help their client. The interest rates will also be lowered down significantly (sometimes even to zero percent), and the penalties from not paying on time or being over-the-limit will usually be waived.
The credit counseling agency and the client’s creditors will work out a debt repayment plan that works for both the client and the creditor so that both sides are happy. On average, clients and their creditors are agreeing on having a 3-5 year monthly paying schedule, which also works perfectly with the clients because they’ll make one monthly payment to the credit counseling agency.
Most of the time, debt management plans are treated as a form of debt consolidation, but these agencies do NOT provide loans. You’ll have to pay back your creditors with your own income. The debts that these firms are trying to resolve would be unsecured debts, which are not backed by any collateral. Unsecured debts include retail store cards, credit cards, and most medical bills.
When an individual is paying off their debt by themselves, it might be too difficult to bear because of the huge minimum monthly payments posted by the creditors due to high-interest rates and fees. One of the many reasons why people are seeking out Debt Management Programs is because they want to experience debt relief, and they want to lower their interest rates to pay off the debt faster and save money in the long run. They also want to waive any penalties and fees accumulated over time and they don’t want to ruin their credit while trying to get out of debt. Debtors save a huge amount of money just by working with a non-profit credit counseling agency, and it ends up well for their wallet and their finances because they made it back to being debt-free.
For those who have been enrolled in a Debt Management Program, the counseling agency will advise their clients to make a monthly payment, which will later be disbursed to their creditors on the agreed upon date. The monthly payment agreed upon between the DMP client and their creditors are based on the current income status of their client and what concessions the creditors give. This information will be relayed to the clients so that they could start changing their lifestyles for the moment, and focus on paying off their debts. It might sound like a losing situation for the creditors, but they usually agree to the proposal of the debt management program because they want to get paid, even if the interest rates are lowered and the penalties are waived. What matters to them is the return of the initial amount that they have released. They do not want to see their clients file for bankruptcy because they may never see any of that money back.
Joining a debt management program has many advantages, like the consolidation of unsecured debt such as credit cards into one monthly payment and also having someone organize your bills. It will also introduce the practice of punctuality when paying bills because the DMP payment will be made on time every month. A realistic monthly budget is also created for you and joining a DMP could improve your credit rating once you are free from debt. It will also give you peace of mind, once the phone calls from your creditors and bill collectors stop. That’s a huge stress reliever.
Despite the promising opportunities in joining a debt management program, some people choose not to participate because they think that they will never be able to complete the tasks required by the organization which can include no longer using credit for everyday purchases and not being able to open any new credit while on the program. However, the key to making it through would be discipline and determination. The benefits far outweigh the short-term sacrifices one might have to make while enrolled in a Debt Management Program.
While some of these are valid reasons, many of them are really just excuses for putting off your plan to get out of debt. Trying to get out of debt can be a scary experience, so some people keep putting it off. Your debt isn’t going anywhere unless you make a real commitment to tackling it and getting rid of it once and for all. Advantage CCS’s Debt Management Program can help you do that!