Are All Debt Management Programs Created Equal?
When fees and structure are regulated, the difference comes down to service.
For the most part, people prefer to get superior quality products. So if you’re facing challenges with debt and need to enroll in a debt management program, you want make sure you’re choosing the best program possible, right? But how do you compare debt management programs to find the best?
The problem with this is that much of what makes up a debt management program (DMP) is heavily regulated. Federal and state laws control how debt management plans are set up and administered. As a result, the differences between two brands of debt management programs are subtle. You have to know what to look for to choose the best debt management program for your needs.
Setup and fee structure should be the same
Nonprofit debt management programs should be largely the same from one provider to the next. All debt management programs consolidate the same types of debts and can’t include other debts, such as student loans. Programs are always structured the same: you make a single monthly payment to a credit counseling agency and they distribute the payment on your behalf.
In addition, fee structures for debt management programs are set based on state regulations. DMP fees are designed to fit the budget you have, so you only have to pay what you can afford to pay. Most states have a cap for fees. At most, fees cap out at $69 nationwide.
So if the program structure and fees are the same, what differentiates one DMP provider from another? Unless the program is a scam, it’ should be the same as any other program you can get from a different agency. The difference comes down to the details of the service.
3 ways debt management program providers differ
Reputation matters when you choose a debt management program provider, and it’s not just to provide peace of mind to you as a consumer. A credit counseling agency’s reputation comes into play as they negotiate with your creditors on your behalf.
When you sign up for the program, you and your counselor arrange a payment structure that works for your budget. However, the next step in the process requires the credit counseling agency to negotiate with your creditors. During this negotiation:
- They get the creditor’s approval on the adjusted repayment schedule.
- They work to reduce or eliminate the interest rate applied to your debt.
If your creditor won’t sign off, the debt can’t be included in the program. It matters that the creditors on the other side of the negotiation trust the reputation of the agency you choose. A large, nationally recognized credit counseling agency with a proven record is likely to have more success. A smaller agency that’s just starting out hasn’t built up the trust you need to negotiate effectively.
A good credit counselor will tell you that enrolling in a debt management program is only half the battle. While you’re enrolled you need to take steps to learn how to budget and manage debt more effectively. You should be learning key financial skills that you may be lacking because most of us never took a class in personal finance.
If an agency doesn’t have a wide range of resources, you may be a “repeat offender” when it comes to debt problems. You are more likely to continue to take actions that lead to debt. You may not have a proper budget in place when you finish the program. As a result, once your credit card accounts unfreeze, you’ll be back to running up the balances.
The more resources your agency can offer while you’re enrolled, the more likely you are to stay out of debt.
This last point comes down to an agency’s ability to provide peace of mind. When you start a plan to get out of debt, you want to know you can reach the finish line. And there’s nothing more frustrating than thinking you have a solution, only to have the company providing that solution close.
Some of Consolidated Credit’s clients have expressed this type of frustration at solutions they tried prior to calling:
“I had been caught up with a different company before and things did not go like I thought they would.” Deotha
“After about two weeks of working with [another] company and still getting calls from debt collectors, I said enough is enough. I can’t take this anymore. My blood pressure went up and I was literally throwing up. It was not a pretty picture.” David
“The first credit counselor I spoke with came up with a great plan. But the company he worked for was bought out by another debt consolidation company soon after. When I tried to contact them, their phones were disconnected. I was upset and angry and I no one to talk to.” Paula
Even if with a seamless transition, switching debt management providers in the middle of your program is stressful. Things could go well or you could end up in Paula’s situation calling a disconnected number with no other recourse. If you start with a company you can rely on then you lower the risk of this stressful situation.