Don’t Write a Single Check…
…until you make sure that your debt management service or credit counselor is legitimate and has in fact made agreements with your creditors. The Federal Trade Commission (FTC) has found some organizations (under rocks and covered with slime) that offer debt management programs (DMPs) and have ripped off their clients. The FTC recommends that you check your bills to make sure that they are being paid as agreed. Continue to pay your bills until a plan has been approved by your creditors. If you stop making payments before your creditors have accepted you into a plan, you’ll face late fees, penalties, and negative entries on your credit report.
If you are paying creditors through a DMP, contact them and make sure that they have received a proposed plan from your credit counselor and have accepted it before you make any payments to the service overseeing your DMP. Once your creditors accept the DMP, you must:
- Make regular payments on time
- Always double-check your monthly statements to make sure your creditors are receiving payments from your plan
- Contact the counseling service responsible for your DMP if you are unable to make an on-time payment, or if you discover that creditors have not been paid as agreed.
Don’t Goof Up Your Plan
Know that if payments to your DMP and thus your creditors are not made on time, your credit rating takes an ugly hit and you may lose the benefits of being in your DMP, including lower interest rates and fee waivers. DMPs are second chances for those who have goofed up their financial management–don’t waste your second chance.
You Only Get a Second Chance Once
Although creditors may have overlooked late payments that you made before you began the DMP, they will probably be unwilling or unable to cut you any slack if payments are late once you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts “re-aged” (reported as current) a second time, even if you start a new DMP with a new counselor. That means your credit report will have late boogers and you may run up late fees, starting up that cycle of increasing debt again–which was what you got into the plan to stop, wasn’t it?
Debt management is a great solution for a big problem–but only if you take your commitment to eradicate debt very seriously.