The Nilson Report measured U.S. residents' credit card debt at $972.7 billion through the end of 2008, equating to an average household balance of more than $10,600. U.S. residents looking to rehabilitate their financial health can turn to a number of options, including a debt management program (DMP). DMPs are offered by nonprofit credit counseling organizations and serve two purposes--negotiate debt solutions with credit card companies and provide education and counseling to the participant. The credit counselor negotiates a lower interest rate with the credit card companies. Payments are made by the person in debt to the DMP, which forwards payments along to the credit card companies.
The Federal Trade Commission does not regulate DMPs, but it does offer resources to assist consumers seeking a DMP. The FTC offers a list of nine essential questions to ask before agreeing to a DMP.
What Services are Offered?
DMPs are typically considered the last resort before declaring bankruptcy. Participation in a DMP is contingent on the person in debt agreeing to not seek any other lines of credit. The credit counselor should offer other programs, such as budget management tools and classes on how to save and eliminate debt. Red flags should go up over any organization that does not offer alternatives or tries to push a user into a DMP.
Is the Company Licensed?
While the FTC does not regulate this industry, many states require a license for credit counselors to offer credit counseling or DMPs. Check with your state's attorney general's office to determine what certifications are required.
Is the Information Free?
Companies that charge for a consultation or information are not truly credit counselors. The National Foundation for Credit Counseling (NFCC) prohibits its members for charging a consultation fee.
Is There a Contract?
There should be a written contract that is signed and agreed upon, with all terms spelled out clearly. While it might be convenient to agree to the terms over the phone, it is beneficial to have all of the terms in writing before agreeing to the DMP.
How Are the Counselors Trained?
Credit counseling agencies typically provide internal training or pay for their staffs to be trained by financial professionals. Agencies who provide no regular training or use programs provided by the credit card companies are not reputable.
What is the Agency's Reputation?
Consult the Better Business Bureau and state's attorney general's office to see whether complaints have been filed. Also, check on the organization's membership status with the NFCC.
Are There Fees?
DMPs might require a setup or maintenance fee to cover banking costs. The agency might waive or reduce the fee depending on financial circumstances. Avoid any organization that refuses to reduce its fee because of financial concerns.
Are Employees on Commission?
Credit counseling agencies should provide unsolicited, unbiased advice. The FTC advises people to avoid agencies that compensates its staff on a commission basis or for signing callers up for services, or if the agency refuses to disclose its compensation structure.
What Privacy Measures are in Place?
Does the agency sell its mailing lists or share contact information with anyone? Are fund transfers secure? Is the organization insured for loss? These are all legitimate questions that should be asked.
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