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Monday, March 30, 2009

Experiences Using a Non-Profit Debt Management Program

debt managementCalling a debt management program (DMP) was a low-point in my life. Newly divorced with more than $15,000 in credit card debt, I didn't trust anyone - not my ex-husband, not my credit card companies (who had come after me ruthlessly despite my very decent credit history), not my divorce attorney, not myself. I certainly didn't trust that the automated phone system at a debt management program called Consumer Credit Counseling Services (CCCS) would help me get out of this terrible financial situation.

But I had to try something! My creditors' calls wouldn't stop. The operators, I could tell, were getting ever more professional sounding, higher and higher up in collections at the banks I was dealing with. I had to find a way to restore order to my life - even if it was going to be a new order that I wasn't happy about having to live with.

Consumer Credit Counseling set up an appointment for me with one of their representatives, and I arrived at their satellite office near my home to find a friendly, polite, young man named Gerald waiting to discuss my findings with me. He was sympathetic. He listened as I described my situation. He said to me, "You can do this. You can get out of debt." He added something comforting like, "It happens to the best of us."

He explained to me the terms of "joining" CCCS: I had to divulge all my debts to them as well as tell them about my income and monthly expenses. Based on that information, they would negotiate with my creditors for lower interest rates and lower monthly payments. They would encourage my creditors to stop harassing me. Usually, Gerald said, it worked. I would stop getting harassing phone calls from creditors. This was the good part.

There were more terms, however. I would have to pay CCCS an initial fee, which I think was around $50. After that, I would have to pay them $24 a month for as long as I was on the program. They would need my checking account number because they would automatically withdraw my monthly payment (in my case it was $360 per month), then they would distribute it out to my creditors. Late payments or insufficient funds could mean getting dropped from the program.

And, perhaps most significantly, as long as I was on CCCS's program, I could not have a credit card or apply for a line of credit. Car loans were an exception.

I was hesitant to sign on. After all, I told myself, I didn't have a credit card problem - that problem had belonged to my ex-husband. My problem wasn't overspending, it was trusting the wrong man. The thing was, though, I was the primary card holder on our accounts, and I was therefore held legally responsible for the debt. I was the one who faced harassing phone calls daily. I was the one who, frankly, cared. I didn't want to go forward in life with a terrible credit record and debt up to my eyeballs. So, umm... I did have a credit card problem no matter what the source. And, I wanted my creditors' calls to finally, finally, stop.

I signed on.

With the help of the debt management program, Bank of America agreed to reduce an interest payment on a very high balance from 23% to 8%. HSBC reduced the interest on a card I had with them from 12% to 0%. And, Cox Communications, a cable/ phone company with whom I had an outstanding balance of $550, agreed to accept a monthly payment of just $20 as long as it came through the Debt Management Program. I had tried negotiating with all these creditors myself with no luck - the DMP did so easily and the harassing phone calls stopped.

I made my monthly payments. I never missed one, even though it was really hard sometimes. I lived without the convenience of a credit card for more than two years. While I was on the program, I also strove to make extra payments to my largest credit card balance (Bank of America), using the debt management program to keep me in good standing and generally on track, but exceeding their expectations by paying down the big debt.

(Gerald, by the way, told me I shouldn't have paid the extra money to the credit card balance, but used it to start a savings/ emergency fund - was this good advice or did he just want me to keep paying CCCS $20 a month? I'm not sure. I will say that every single person who I ever spoke to at CCCS, by phone or in person, treated me with kindness, compassion, and respect. I never heard a derogatory word or had the horrible experience of calling during business hours and being unable to reach a real person. Overall, I'm thankful to the company for their support.)

Finally, I was able to pay off almost all of the debt and a family member lent me the last few thousand so that I could go off the debt management program. I wanted to rejoin the world of credit - and reestablish myself as a good credit holder. I expected credit card offers to come pouring in to me. They haven't. I'm not sure if it's because I was on a debt management program or if it is because in the current economy banks simply aren't extending credit to new/ risky customers. I did finally procure a credit card, but it has a limit of just $500 and an annual fee of $39. (So... six months off the program and I'm $39 back in credit card debt, already... without even making a purchase.)

If you are considering a debt management program (DMP), here are some points to consider:

  • It should be a not-for-profit organization and the monthly fee should not be above $40.

  • You should be able to make extra payments to your credit card accounts at your convenience without going through the DMP.

  • You should be able to go off the program at any time you choose, with no penalty from the DMP itself. (Your credit card companies may punish you - for example, when I went off the DMP, my one card with a remaining balance went from a 0% interest rate - negotiated by the DMP - to an interest rate above 30%.)

  • You should be treated respectfully every time you call to speak to a representative at the DMP.

  • They can only help you as much as you are willing to commit to helping yourself.

The Federal Trade Commission has also posted information for consumers about using Debt Management Programs effectively and about how to know if the program is legitimate. Link to that information here.

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Blogger FedPrimeRate.com said...

Thanks for sharing your experiences with a debt management company (DMC). I was not aware that while you're on a plan, you aren't allowed to have any credit cards. I wonder if this is true for all DMC's.

Also cool that you were able to get a 12% credit card rate knocked down to zero.

From your story, can we assume that you feel that using a DMC was worth the $50 initial fee plus $24 per month?

Wednesday, April 08, 2009 1:34:00 PM  
Anonymous Debt Help said...

How far did you credit score drop after you were done with the plan?

Also, here's a quote from the CCCS website:

$25 Initial fee + $25 monthly fee for administration costs. CCCS doesn’t deny service if you are unable to pay. In cases of financial hardship, fees can be reduced or eliminated.

Wednesday, April 08, 2009 1:56:00 PM  
Blogger Olivia Sage said...

>From your story, can we assume that you feel that using a DMC was worth the $50 initial fee plus $24 per month?

YES! At the time that I found myself divorced and in debt and living with my parents, I was in personal as well as financial crisis. Using the DMP just simplified things so that I could manage. Otherwise, I think I would have had a nervous breakdown. Also, remember this was before the rest of the world was in financial turmoil, so at the time I felt a lot of loneliness, guilt, and shame. There weren't many people to turn to, and the support of the DMP was worth the money just for that.

Financially, I'm not sure if it was the best move. Sometimes I think declaring bankruptcy might have been better, but I didn't want to. I suppose the main point was I couldn't pay my minimum payments (one card was up to $950 min.), so I had to do something.

Thursday, April 09, 2009 12:25:00 PM  
Blogger Olivia Sage said...

>How far did you credit score drop after you were done with the plan?

I need to check now that I've been off for six months. For a while it was very low, in the "very poor" range, but that was probably because of the "foreclosure proceedings begun" note on my credit report.

I will check on this and get back to you. I think I've heard that completing the plan can actually raise your score - after all, you have then paid off all your debt.

Thursday, April 09, 2009 12:28:00 PM  
Anonymous Adrian said...

Thanks for sharing, Olivia.

My friend joined with good intentions of getting rid of the debt created by his ex-wife during their brief marriage. She left him with upwards of $25,000 in credit debts. Once he joined the program, the CCC of LA started working with his creditors to create agreements for a lowered payments and interest rates.

At first everything seemed to be okay. His creditors set reasonable payments and rates. He started sending his monthly payment to CCC of LA who then pays the creditors. For the first few months, each time he received his statements, it would show that he was still late on his payments.

He called the companies and they said that they changed their minds and they wanted a higher payment! What the hell?!

This is really just a trick the credit card companies play to get you to send them more money and if you don't, they charge you more fees. Because of the program's rule of not paying creditors directly, additional late and over the limit fees continued to build while they worked out new agreements.

This happened for months and the fees ran in excess of hundreds of dollars. While this problem was only happened in the beginning, it's likely to cost him around $1000 over the course of paying it off. Plus, the creditors continued to report late notices to the credit reporting agencies.


Friday, April 10, 2009 5:33:00 AM  
Blogger FedPrimeRate.com said...

> Sometimes I think declaring
> bankruptcy might have been
> better...

I think you made the right move in choosing a debt management plan (DMP). Chapter 13 bankruptcy is useful if your home is at risk of foreclosure, but otherwise I wouldn't recommend it. Even after 10 years has passed and the bankruptcy has been removed from you credit reports, you will never be able to get a truly excellent credit rating. For example, to qualify for the best Capital One credit card, there must be no bankruptcies in your past.

Friday, April 10, 2009 12:51:00 PM  
OpenID danielcurran said...

My wife and I are real estate agents and are familier with credit counseling. The company you mentioned has an excellent reputation and has had for many years.
What went wrong is many other companies came along and most of these were, unfortunately, scammers.
(I won't get into the horror stories)
The banks, in response to these companies, said if you enter a credit counseling program we will view it the same as a chapter 13.

Saturday, April 11, 2009 1:28:00 PM  
Anonymous Debt Consolidation said...

> The banks, in response to
> these companies, said if
> you enter a credit
> counseling program we will
> view it the same as
> a chapter 13...

Right, which underscore the importance of choosing a debt management program carefully. The one used by Olivia Sage (the author of this blog post) is endorsed by The National Foundation for Credit Counseling and The Association of Independent Consumer Credit Counseling Agencies.

Saturday, April 11, 2009 1:56:00 PM  
Blogger ShadowWind said...

It's very good that you have pointed out a legal, honest place for people to go. Often times, there is so many cons on the net which sound too good to be true that people fall for. Debt management is a big help when things don't always go as planned.

Saturday, April 11, 2009 4:05:00 PM  
Blogger Olivia Sage said...

Yes, if I had to rate the CCCS program that I used, I would give it a B+. Everything happened (negotiations with my creditors, disbursement of my funds) exactly as they said. And as I said, I was always treated extremely respectfully. The attitude of most people who I dealt with there was, "It happens to the best of us. Let's get started taking care of it."

The B+ (instead of A) rating is just because at times their advise seemed just slightly generic. They didn't seem to take into account my age (I was under 30) or education levels (master's degree) or housing status (lived with my parents) when giving me financial advise. I guess to me it seemed important to put a huge part of my income to paying down the debt; they felt I should grow some savings.

But then, for $25 a month, they couldn't possibly become personal financial advisors for every client. And that's not their mission either.

Saturday, April 11, 2009 5:19:00 PM  
Blogger FedPrimeRate.com said...

> The B+ (instead of A) rating...

They were courteous and professional and did exactly what they promised they would do. You're a tough grader!

Did they not offer to teach you how to manage your finances better?

Saturday, April 11, 2009 5:43:00 PM  
Blogger Olivia Sage said...

Okay, you're right... I am a tough grader. I am an English teacher by profession, after all. And, despite that, I just noticed that I spelled "advice" as "advise" twice in my post yesterday. So, I guess none of us are perfect... including CCCS. I gave them a B+ meaning "very, very good."

Yes, they did offer much great advice about financial management, and being on the program was a great learning experience. In fact, just for joining the program, I received four or five booklets from them with topics such as "Your Credit Report" and "Your Personal Records," as well as a complimentary paperback book titled Life or Debt by Stacy Johnson.

Don't get me wrong! All the support was extremely helpful. I guess I was just making the point that in a totally ideal situation, the advice might have been a bit more personalized to each client's broader situation. Overall, I would recommend the Consumer Credit Counseling Services highly to anyone in need of an effective and trustworthy debt management program.

Monday, April 13, 2009 1:49:00 PM  
Anonymous Toni said...

Thank you for you sharing!

Saturday, April 18, 2009 2:12:00 AM  
Anonymous therealdebtsolution.com said...

Anyone looking to deal with Non-profit or For-Profit debt management companies should do their homework.

I think that good advice can do no harm, but when it comes to having companies do things like pay your bills and set up accounts to manage your payments.

This can lead to trouble.

Monday, April 20, 2009 10:45:00 PM  

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