What a Debt Management Program is and What It Isn't
A Credit Article Contributed by Mark Mcclelland
Understanding the Debt Management Program
We've all seen the ads from unscrupulous organizations blaring 'we can lower your monthly payments by up to 50% or more', but being the smart people we are, we know that any debt management program is unlikely to be able to achieve results that even come close to that. But these agencies use more subtle approaches as well: 'We have a special relationship with over 15,000 creditors nationwide and can use their hardship program to reduce your interest rate and payments'.
And this couldn't be further from the truth either. Except in VERY rare situations, there is no such thing as a hardship program, and you can be sure that companies that claim to have a "special relationship" with creditors are unlikely to have any such thing.
These are the kinds of tactics used by less-than-reputable companies in an effort to get you to sign up for their debt management program. In theory, they'll set up such a program and work with your creditors in an effort to get them to reduce your interest rates in order that you can pay off your debts in a shorter period of time. And while the idea is sound, the actual experience of thousands and thousands of consumers indicates that by far and away, the majority of these program are merely scams designed to separate your from more of your hard earned money.
How Bad is the Debt Management Program Industry?
To give you a feel for how lucrative this industry is, although many of these organizations enjoy tax-exempt status, many simply use what would otherwise be profits to compensate their senior executives. In 1996, Bernaldo Dancel was the head of Genus and drew a salary of approximately $331,000, at a time when the nationwide average for similar non-profit organizations was $134,000. Likewise, Credit Counselors of America paid its president more than $397,000 in 2000.
And the flaunting of loopholes in the laws regulating non-profits doesn't end there. These agencies often use real estate deals and lucrative contracts for services with companies owned by directors of the agency to funnel money out of the non-profit business into a for-profit business. For example, Credit Counselors of America bought the building it used as it's headquarters from its president, and paid over $461,000 in fees to a company owned by one of its directors.
There have been so many complaints filed with the FTC over the last several years concerning the out-and-out scams some of these companies were running, that a Federal Committee asked all of the major players in the credit card issuing business to come up with a table of minimum payments and interest rates such that consumers could pay off their credit card debt with each issuer in 5 years. The results of this committees work now serve as the guidelines used by debt management and reduction programs administered by for non-profit and for-profit agencies.
How to Avoid Becoming the Next Meal Ticket for a Debt Management Program
Of course the best place to start looking for a debt management program is on the Internet. Even though a massive amount of information is available on-line, it's not always easy to separate the wheat from the chaff.
A good place to start might be to look at the National Foundation Consumer Credit (NFCC) website. This organization is the oversight agency for many of the nonprofit agencies, including the various Consumer Credit Counseling Services. It also serves and the overseer of many of the more reputable for-profit companies, like the Accelerated Debt Consolidation Corporation.
