These companies have been around for years making promises of lower credit card payments, frozen interest rates, shorter pay-off schedules, etc. etc.
These programs seem like a no-brainer for the person that is having trouble with their monthly credit obligations. Those of us that have had hardships and those of us that basically just let our debts get out of control tend to end up speaking to one of these offices at one time or another.
Although on the surface these programs look like a fix-all to your credit problems they are not without their own set of issues.
I will begin with a general misconception from the side of the consumer. Many people view these programs as a way to lower their monthly payments, not have to file for bankruptcy and SAVE THEIR CREDIT. This is where things begin to go wrong. You can call these programs debt consolidation, credit counseling, debt restructure, call them anything but credit saving programs.
After years consulting individuals and training professionals on the subject of credit reports and credit scores I have viewed hundreds and hundreds of credit reports. I used to concentrate on the niche of finding mortgage programs for people with less-than-stellar credit so I ran into my fair share of individuals that were participating in this type of program. Out of all of these people, I have only witnessed 2 people that came out of this type of program with better credit than they started with. I will repeat this, I have only seen 2 people come out of this type of program with better credit than they went in with.
So the first thing we as consumers must do is recognize that if we decide to participate in one of these programs, there will be a chance of our credit getting worse instead of better. Sounds like a lame deal huh?
In their defense, I don’t think I ever saw a commercial or advertising from them saying that they will help you keep a good credit score. Their main message usually says that they will save you from having to file for bankruptcy.
Please keep in mind that I am sharing MY experience with what I have seen throughout my career. This is not meant to sway you to make a choice one way or another. What I am sharing is meant to make you think very seriously about these types of decisions, the company you choose and the best way to get yourself back on track with the least amount of suffering. Basically I am trying to shed some light on the subject.
If you don’t already know what the program works like, read the debt management plan section of the National Foundation for Credit Counseling’s FAQ page.
Basically a DMP (Debt Management Plan), as they call it, is a 3 to 5 year payment plan set up in order for you to repay a portion of your outstanding debt.
For those of you who have dealt with these terms before, this may ring a bell when you found out about Chapter 13 Bankruptcy. Which is basically a court appointed 3 to 5 year plan set up in order for you to repay a portion of your outstanding debt.
There is an old debate going around as to which is the better choice. But that is a loaded question that we may tackle on another post.
If you would like to read more on this subject, there is a decent publication from the Federal Trade Commission called Knee Deep In Debt
After you read this, you will have a good basic understanding of what each program is and what it offers. Then you will be ready for us to get into the nitty-gritty portion of this subject, the inside workings of the programs.
Until then, I will leave you with the reading assignment and these words of wisdom.
- Do not take these decisions lightly.
- Do not get reeled in by a slick talking person over the phone.
- Feel free to ask questions.
- If things do not feel right do not be afraid to walk away.
These are subjects that can take a lot of time and energy from you. Not to mention the long lasting effects to your financial status if you make a wrong decision.
You are the one that has to deal with this long term, not the person signing you up. Be careful, be wise and get educated as much as possible. This is a delicate time for your financial future and it should be treated as such.
Feel free to share this post if you found it useful. By re-tweeting, sharing it on facebook or recommending it to your friends. As always, feel free to comment here on the site and ask questions if you like.
To Your Success!
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8. February 2010 at 10:18 PM
Jose – A lot to think about, or to know… Do you help people with this? I had a good friend asking for help sorting this out last week and I didn’t know where to send her….Thanks for your wisdom!
Amy Posner´s last blog ..Change Your Story
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Caraballo & Associates Reply:
February 23rd, 2010 at 9:52 AM
I do Amy, I consult people on many things financial. I like to bring transparency to the table as I know that these subjects are extremely confusing.
I have been doing thi for years and now I am working on a complete website for this type of education. Do you think that would be useful to them?
Let me know and stay tuned for the website!
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8. February 2010 at 11:34 PM
Being up to our knees or worst our ears in debt is a scary place and it can often lead people to react out of fear instead of with logic. Places that take advantage of that fear know just how to spin it so that your stomach twists and you start to believe if you dont take their offer you may never have another chance. How sad it is that the manipulate people in such dire need of help. Keeping out wits about us, and thinking logically about the matter will help keep us from digging a bigger hole.
Thanks Jose!
Kimberly Castleberry´s last blog ..Brand Your Tweets on Twitter For Free with TweetBrand!
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9. February 2010 at 10:44 PM
I always wondered about these kind of businesses. Thanks for the insights.
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10. February 2010 at 2:14 PM
Thanks for shining some light on a topic that many people need help on. Debt can be a very heavy load and some people are so desperate that they’ll do anything to get out of it. Thanks for sharing valuable info to help people make more informed decisions!
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Caraballo & Associates Reply:
February 16th, 2010 at 11:21 PM
just like sharks can smell blood from miles away, so too can people smell desperation on someone else. Not all of these companies are bad but one really has to be careful with the choice that they make.
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10. February 2010 at 3:49 PM
Thank you all for the commenting and getting involved. Amy I DO consult for such situations. I can offer a one hour free analysis of their situation. It would be my pleasure.
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11. February 2010 at 3:16 PM
Hey Jose! I think it is great that you are sharing all of your knowledge to help people who are struggling with Debt. I don’t know that I have ever heard anyone give such a clear explanation of what the purpose of this type of program. It is really only for the people who are trying to avoid bankruptcy not people trying to improve their credit.
I had a boyfriend when I was younger who tried a Debt Consolidation program and his creditors were not happy with what they were getting paid. He received more angry calls from them while in the program than he did before he started it.
I can’t wait to learn more from Part 2.
Melissa Wright´s last blog ..You’ve Been Laid Off…Now What?
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Caraballo & Associates Reply:
February 16th, 2010 at 11:19 PM
It is actually sad that I have had to walk so many families through this. This is why I am trying to clear it up and explain things in as much detail as I can. I can only hope someone out there benefits from my experiences.
Thanks for visiting!
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16. February 2010 at 7:59 PM
Thanks for your valuable information and insights, Jose. I have someone very near and dear to me suffering greatly right now….and will pass this information along.
Much appreciated my friend.
Beth Allen´s last blog ..Time Saving Tips to Streamline Your Social Media Strategy
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Caraballo & Associates Reply:
February 16th, 2010 at 11:13 PM
My pleasure Beth and I hope this helps them along their journey… Let me know how it turns out.
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16. February 2010 at 10:34 PM
Great to learn about these credit counseling organizations. Kind of a two-edged sword.
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Caraballo & Associates Reply:
February 16th, 2010 at 11:12 PM
Wait until you see the rest of the story…thanks for coming by!
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16. February 2010 at 10:41 PM
This is such an important issue in general, but considering all the foreclosures and short sales and you name it…this is even more relevant than ever…
Thanks for the insider tips my friend…I could use them
Nick Logan´s last blog ..By: Nick Logan
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Caraballo & Associates Reply:
February 16th, 2010 at 11:11 PM
My pleasure Nick. I only have two wishes 1. that these posts help people work through their own modifications and 2. that this thing works out for my family. Fingers crossed!
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20. February 2010 at 2:24 PM
Really great information as usual Jose. I do have a question, I know there are a lot of companies out there now stating they can get rid of your debt by doing some type of settlement – and advising people to stop making payments, send these companies the money and they will do all the talking with the creditors. What is your take on that? Thanks for the great info!
Jan Hill´s last blog ..Look Who’s Talking…..
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Caraballo & Associates Reply:
February 21st, 2010 at 12:39 AM
Thanks Jan,
These are very gray areas in the world of finance. One has to be extremely careful when being advised to stop making payments on anything. Especially when you are handing over responsibility to someone else. One must weight many options such as where are we now, what is our future plan for our credit, what is the alternative, how does this fit into our complete financial picture.
We cannot act out of desperation when we are on this path, we need to make intelligent, informed decisions in order to choose the lesser evil. It is sad for anyone to be in this situation but it is WAY worse to make a mistake and have to live with that mistake for a much longer period of time.
FYI, I am working on a member website that would educate and inform people on all the pros and cons of these programs as well as various other financial aspects. So stay tuned!
Thanks for asking the question, it is an important one for people nowadays.
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