Consumer Counseling Credit Debt Management Organization

What Do Consumer Counseling Credit Debt Management Organizations Do?

The most common approach is to take over the unwieldy stack of bills and notices and compress it all into one, simple monthly payment through a debt management plan (DMP). In effect, you cease to pay $30 here and $200 there; you send one big, fat check to the organization, who then divvies up the bucks to your creditors according to the agreements they've made.

This brings us to another key part of a good consumer counseling credit debt management organization; the contact with the creditors. If you're at the point of jumping into a DMP plan, you've probably already accumulated a few delinquent accounts here and there. Not only does the organization handle the day-to-day contact with the creditors (hopefully ending those unpleasant phone calls), but by engaging in a DMP they often waive some or even all extra fees and charges for your pre-DMP mess.

In effect, by seeking the help of a credit counseling organization, you've shown yourself willing to play ball and make a good-faith attempt to straighten things out. This leniency on the creditor's part isn't all from the goodness of its heart though. A customer on a DMP is in trouble, and any creditor knows that getting 80 or 90 percent of what they're owed is much better than playing hardball and getting the grand goose egg when the customer tosses in the towel and files for personal bankruptcy.

Beware of Sharks!

Some debt management organizations are funded by big credit companies (who naturally have a keen interest in keeping people out of bankruptcy court), some are charity-based or has religious roots, and then there's that nasty clique that prey on the elderly and single mothers about to lose their house. The Federal Trade Commission has cracked down on some of the worst offenders in recent years, but there are still enough sharks circling around that you should tread very, very carefully before signing anything or cutting a check.

One way these fraudsters work is to make fantastic promises of super-low monthly payments, as long as you just cough up a grand or two up-front for their work. Needless to say, you'll most likely never hear from them again the second your check clears.

Another approach is to skim your DMP payments. Say they collect $2,000 a month from you, yet only pay $1,200 to your creditors. They may consistently underpay certain creditors, which makes it harder to detect since partial payments tend to set off fewer red flags than no payments, and thus can drag the scam out for months and months. The only way to be certain is to study the monthly statements very carefully, and call your creditors to verify that they have indeed received the correct amount in an orderly fashion.

How to Pick a Good Organization

There are new organizations popping up right and left. Here are three important characteristics to look for:

No big up-front fees -- Any credit counseling firm asking for a big check up front should be viewed with utmost suspicion. There will be some fees involved, but they should be modest and transparent. If they get vague or refuse to give you anything in writing, hang up. Double-check that you're dealing with a non-profit organization.

Good references -- Ideally, someone you trust have had a good experience with them in the past. Your state's Attorney General's office and your local Better Business Bureau can also help uncover potential ugly sides.

Broad services -- The person you talk to should be genuinely interested in your financial situation as a whole, not just rush to jam your bills in a DMP and move on. Some situations are inevitable, but many with out-of-control debt would greatly benefit from some one-on-one budget counseling, and they should at least ask.

These three rules, along with a healthy dose of common sense will get you a long way. Remember, if something sounds too good to be true, it usually is. Good luck!