Avoid Debt Management Scams with These Key Questions
When debt is piling up, it may seem as if there's an ad for debt relief everywhere you turn. In one heavily advertised method, the debt management program (DMP), the consumer deposits money on a monthly basis into a special account. The company managing the DMP negotiates lower payments and interest rates with your creditors, then uses the money from that account to pay off the bills.
DMPs really can help you get out of debt, but only if you work with a reputable company. To avoid DMP scams that cost you money and deepen your debt, ask questions like these:
1. Are you accredited as a nonprofit credit counseling agency?
Verify nonprofit status with the Internal Revenue Service, then find out whether any complaints about the agency have been filed with the Better Business Bureau or your state attorney general's office. Ask whether the company is a member of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling; these organizations hold their members to strict financial, ethical, and quality standards.
2. Are all your counselors certified?
To be certified, a counselor must pass an exam to demonstrate competency in counseling, credit and consumer law, budgeting, debt management, and bankruptcy. Look for certifications from an independent agency.
3. What other services do you provide?
A legitimate company also offers advice for budgeting, financial counseling, advice regarding various methods for reducing debt, and referrals to other agencies. On the other hand, run away if a counselor:
. Wants you to sign up for any program before completing any counseling.
. Pressures you into a debt management program as your only alternative.
. Is compensated if you sign up for the DMP.
4. Will you provide free information or services without my personal information?
A reputable agency will share information without first demanding your information.
5. Do you ask for fees, "donations," or "voluntary contributions"?
The company should be up-front about the fees it charges. A $50 setup fee plus a $50 monthly fee is reasonable; hidden fees or required "donations" are not.
6. Which debts are included in the DMP?
You should be given a written list of which debts will and will not be included in your DMP. If not, then choose a different company.
7. Will we use a written contract?
Don't enroll before the agency has put the details of your agreement in a formal, written contract. If it refuses to provide one, then go elsewhere.
8. Will you give me detailed account information every month?
The agency should give you monthly reports describing the status of your accounts. If not, then use a different agency.
Asking these questions will help you sort out the legitimate agencies from the scammers. Once you've selected a company, don't forget to monitor the status of your debts to ensure that they're decreasing as expected.