“Dear Steve,

Poor, Poor, Poor money management!! I need some direction on what to do. I am terrified of bankruptcy, and want to do anything to avoid it. I have read a number of things on your web site, which I truley appreciate, and you have talked about the failure rate of so many people who try debt management programs, but you never explain why so many people fail. I want to get out of debt, I want this massive monkey off my back, and I am just looking for some real advise that I can beleive in. Would love any kind of feedback.

Thanks,

Chris”

The Answer:

Dear Chris,

Debt management fails because the extended repayment plan is not based on what is reasonable, affordable or sustainable for you. It is based on what the creditors want, which is just about the same each month as you are paying now. But if you could make that payment, you’d do that now.

Creditors want to see your budget that the debt management company will create for you and creditors don’t like to see that you are saving money in an emergency fund instead of forking over everything you can each month.

Because the repayment plan does not include a savings component all it takes is one unexpected big expense to throw you off track.

The ultimate issue here is that I feel like you are trying to bargain for a solution that you want on an emotional level, and not a solution that is best suited to your situation.

What I hear you saying is that you don’t like bankruptcy, for whatever reason, but that you’ve also discounted it as a possible solution based on your biases about what bankruptcy means to you.

Making an appointment to go in and talk to a bankruptcy attorney is free, asking all your questions is free, learning if bankruptcy is an appropriate solution for you is free. The only thing you will walk out of that appointment with the bankruptcy attorney is knowing the facts and be better informed to make a decision that is best for you.

I’m not telling you or suggesting that you go and do anything you don’t want to do. I’m simply suggesting, urging, that you get the facts first before you start erasing possible solutions.

Big Hug!

@GetOutOfDebtGuy

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

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Read the full article at GetOutOfDebt.org, click here: I Really Screwed Up And Need Some Direction. – Chris

“Dear Steve,

I am in over my head and I really don’t have a clue if I can ever get out of debt. I have six credit cards, most of which i have closed.

I currently am making minimum payments on my credit cards (6) and the loan I took out from Bank of America. Totally I owe 30,000 with varying rates from 17 to 21. I can make the minimum payments but things are starting to get tighter and I am concerned that if they raise my apr I will not be able to make the payments. Last month I got 7 letters from Bank of america cancelling my account (did me a favor) changing me from fixed rate to variable rate and then back again. They also sent me a letter saying if I was having prob lems they had a list of dmp that they could put me in touch with.

Are debt management programs for real because when I mentioned it to the guy at Capital one he gave me the impression that I would be taken to court if I tried to do this. Would they really take you to court even though your working with a debt management program.

Thanks

Kim”

The Answer:

Dear Kim,

Debt Management Programs (DMPs) are for real and legal but they have no power of law behind them, give you no consumer protection, they are not binding on the creditor and give you no rights. They are a voluntary program put in place by the creditors in an attempt to recover money from you. And they are not very effective. See, The Truth About The Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.

The largest problem with a DMP in your situation is in a DMP your monthly payment is just about the same as the minimum payment not in a DMP. So if it won’t reduce your total monthly payments significantly then how would it benefit you? It doesn’t really matter than some of the interest rates would be reduced if the payment is not manageable or sustainable over a five year period.

If you were working with a Debt Management Program it is highly unlikely that Capital One would take you to court as long as you are making either the contractual minimum payment required by Capital One or agreed to by Capital One with the DMP provider.

If you want to try to get some interest relief and lower your over all payment the first step would be to explore the peer-to-peer lending network, LendingCLub. You may be eligible for a lower rate debt consolidation loan for up to $25,000 of your debt from LendingClub.com.

Outside of that, the only way to get your interest rates to 0% and repay what you can reasonably afford is in a Chapter 13 bankruptcy plan.

Unfortunately you are right where the creditors want you, heavily in debt, stuck on their cards, and with few options.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Other Related Articles to Read

• Can I Keep One Credit Card Open for Business in a Debt Management Plan? – Dave
• Banks Agree to Wipe Out Up to 40 Percent of Credit Card Debt But Watch Out.
• Which is Cheaper: Credit Counseling, Debt Settlement, or Bankruptcy?
• How Do You Value Your Quality of Life? Debt Solutions to Fix The Future
• I Would Like to Consolidate My Debt, However I’m Having a Difficult Time Finding Someone Who Will – Laurie
• I Really Screwed Up And Need Some Direction. – Chris
• I Owe American Express and I Am About to Start a Debt Repayment Plan With Money Management International. – Shelley
• My Bank Does Not Accept Payment From a Debt Management Plan. What Do I Do? – Junior
• Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.
• What Do You Think of the CCCS company Money Management International? – Carol

Read the full article at GetOutOfDebt.org, click here: Are Debt Management Programs For Real? – Kim

“Dear Steve,

I am just barely above water, and the tide is coming in!

132,000 in mortgages (first & second).
53,300 in credit cards.

Can you recommend a reputable debt management service? My goal is to pay down debt as quickly as possible w/out to much damage to credit.

Also, I need to keep one card available for business- can this happen with DMP?

Dave”

The Answer:

Dear Dave,

For debt management information, click on the link. I can’t recommend any particular company. When you connect with one if you want me to consider what they are offering you just come back and post an update in the comments section below.

Any debt management program will secondarily hurt your credit when the accounts included are closed. If the card you are using for business is with the same bank as one of the cards you are including, it would be closed by the bank.

There is no law or regulation that says you have to include all your cards in a debt management plan.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Other Related Articles to Read

• Are Debt Management Programs For Real? – Kim
• Which is Cheaper: Credit Counseling, Debt Settlement, or Bankruptcy?
• How Do You Value Your Quality of Life? Debt Solutions to Fix The Future
• I Really Screwed Up And Need Some Direction. – Chris
• I Owe American Express and I Am About to Start a Debt Repayment Plan With Money Management International. – Shelley
• My Bank Does Not Accept Payment From a Debt Management Plan. What Do I Do? – Junior
• Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.
• What Do You Think of the CCCS company Money Management International? – Carol
• My Dad Took Out Cash Advances on My Credit Card And Took All of My Savings. – Heather
• Eva Has Heard Negative Things About CCCS

Read the full article at GetOutOfDebt.org, click here: Can I Keep One Credit Card Open for Business in a Debt Management Plan? – Dave

For years I have been emphatic that in a credit counseling or debt management repayment plan, it isn’t the interest rate reduction alone that is important, people need to get their monthly payments reduced. That’s more important.

New “Call to Action” debt management plans (DMPs) offer low or no interest rates to people who can qualify. In addition, the plans allow for people to be able to save from $25 to $200 a month while in these plans to help them build an emergency fund to tap in case of a financial surprise. Excellent!

A downside to these plans is that these special terms do not appear to be available to all people and some enrolling in a DMP that will pay a higher monthly payment or a higher rate of interest since they either won’t qualify or be approved by the creditor for these special Call to Action (CTA) concessions.

Consumers who can meet their monthly contractual payments with available cash, net of the emergency cash cushion, will not be eligible for a DMP; however, consumers whose available cash, net of the $200 cushion, is GREATER than a 2 percent fixed payment, but LESS than the full monthly contractual amount, WILL BE DMP eligible and must add that additional amount to the DMP fixed payment. Source: Association of Independent Consumer Credit Counseling Agencies (AICCCA)

According to the NFCC the criteria for enrolling in the CTA will be decided on a case-by-case basis by the counselor, with the final acceptance coming from the creditor. In a typical counseling session, after a thorough review of all sources of income, living expenses and current debt obligations, the counselor makes recommendations for resolving the financial distress. If the CTA is right for them, it will be recommended. The decision regarding which level to recommend is driven by the consumer’s budget and does not include additional criteria such as how delinquent the client is, or the amount of total debt.

I am also told by others that the consumer will be told by their counselor that they must liquidate any assets they might have to reduce the amount they owe to qualify for the CTA DMP.

If you are already enrolled in a DMP and have had a change in your financial situation, ask your counselor if you can now qualify for the CTA.

Creditors participating in this new selectively available DMP will waive late and over limit fees and adjust the APR so that DMPs will not extend longer than 60 months.

Not all creditors that have pledged participation are accepting people into these programs yet. They claim that they can’t since their computer systems are not setup to accept these special proposals. A typical excuse.

Despite what you may hear, these special DMPs are being are being extended to agencies within the NFCC, AICCCA and other independent true nonprofit agencies, not just NFCC and AICCCA.

Let’s look at how this plan would give you some breathing room if you qualified for it. If you owed Chase $10,000 your monthly payment would be $200 in the regular Call to Action DMP and $175 in the hardship plan.

While it is fantastic to get a monthly payment reduction. I am not convinced that it is a significant enough reduction to make a big enough difference to give the consumer the greatest chance of successfully repaying their debt through the DMP.

It is still too early to report on a review of the effectiveness of these repayment plans but the NFCC states that an initial review will be available around the first part of August.

It will be interesting to see how these plans benefit consumers that want to repay their debt through a DMP. I think it is obvious that a creditor would prefer to not lower the monthly payment or interest rate any more than necessary. And ultimately the question of effectiveness will come down to one more rooted in behavioral economics, than DMP terms.

The longer that a consumer will need to repay with a tight budget, the higher the failure rate should be. Long periods of forced budgetary deprivation are hard to tolerate and thus more likely to fail. All you have to do to confirm this fact is look at the tremendous failure rates of chapter 13 bankruptcy plans that offer reduced payments and consumer protection from creditor collection actions, something the CTA does not offer. The vast majority of the chapter 13 bankruptcy plans fail and are either converted to chapter 7 bankruptcy and the debts fully discharged since the consumer could just not keep up on the payments for such an extended period of time or had a life or income change.

Call to Action DMPs are a step in the right direction but I’m concerned that acceptance still leavers the debtor with a very tight budget and that will be the failure point of an otherwise great step in the right direction for consumers.

The original NFCC / CCCS press release is below.

Responding to the “Call to Action” of the National Foundation for Credit Counseling (NFCC), the nation’s top 10 credit card issuers have agreed to provide additional relief to consumers struggling to repay their debts.

“This represents a significant action on the part of the creditors to take additional steps to help consumers, which is our collective mission,” said Susan C. Keating, president and CEO of the NFCC. “This will provide those in debt with more options to stabilize and rebuild their economic lives.”

For more than 40 years, consumers have avoided bankruptcy and benefited from repayment programs commonly referred to as “debt management plans” (DMPs) through which creditors provided some repayment concessions, including waiving late and over the limit fees and a reduction in interest rates. However, in these tough economic times, fewer consumers have sufficient income to be eligible for, or the ability to maintain, a traditional DMP, often leaving bankruptcy as the only option.

In response to a need to make better alternatives available to struggling consumers, the NFCC issued its “Call to Action” last fall, calling on more creditors to take additional steps to make DMPs more affordable for people in troubled financial circumstances. The NFCC also expressed its appreciation on behalf of struggling consumers to those card issuers already providing significant concessions aligned with the “Call to Action.” The “Call to Action” set the end of the first quarter of 2009 as the target date for adoption and implementation. Together with the “Call to Action,” the NFCC created a strategic partnership of NFCC Agencies and Association of Independent Consumer Credit Counseling Agencies (AICCCA) to work with the top 10 credit card issuers.

As of March 31, the top 10 credit card issuers have agreed to implement the changes necessary to provide both a more affordable “Standard” DMP and a “Hardship” DMP (together, the “Call to Action” DMPs) for consumers who are seeking to avoid bankruptcy, but who do not have sufficient income to qualify for a traditional DMP. The key elements of these two new DMPs will allow consumers to maintain a reasonable monthly budget, establish a savings account for economic emergencies, make fixed monthly payments more affordable, and be out of debt within 60 months.

Those creditors supporting the “Call to Action” are American Express, Bank of America, Capital One, Chase Card Services, Citi, Discover Financial Services, GE Money, HSBC Card Services, U.S. Bank and Wells Fargo Card Services. The NFCC urges all other consumer lenders to follow suit.

“Many consumers are facing serious financial problems, and they should be given every opportunity to qualify for an affordable program that meets their individual circumstances and that puts them back on the road to financial stability,” said Keating. “We applaud these creditors for recognizing the need to do more for consumers who are trying to avoid bankruptcy, and need some additional help with interest rate and fee waiver concessions so they can repay their debt.” Source: NFCC

@GetOutOfDebtGuy

Other Related Articles to Read

• Dear Credit Counseling, Times Only to Get Tougher.
• Citibank Closes Credit Counseling Call to Action Program
• Are Debt Management Programs For Real? – Kim
• Can I Keep One Credit Card Open for Business in a Debt Management Plan? – Dave
• 2009 NFCC State of the Credit Counseling and Financial Education Sector Address
• I Need to Take Out a Payday Loan to Cover My Credit Counseling Payment
• I Found Myself in Debt Again and Back in a DMP. Should I File Bankruptcy? – Carol
• Which is Cheaper: Credit Counseling, Debt Settlement, or Bankruptcy?
• Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.
• I Am a College Student. How Bad Is It to Pay My Bills Late? – Zaria

Read the full article at GetOutOfDebt.org, click here: Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.

Giner wrote in through the GetOutOfDebt.org site and asked for help.

“I started a new business, had a few small credit card balances before, but had to use them, plus acquiring a few more, and with the balance trasfer deals, I now have 8 cards with a total debt of $50,000+. I manage to stay a float, my business has grown, but with the terrible interest rates, I pay out more in interest than principal even always paying more than the minimum due. I can’t get ahead.

I’ve asked card companies to reduce rates, even asked for managers, but can’t get them to reduce interest; what can I do?“

Ginger,

I’ve certainly seen many business advisers that suggest turning towards credit cards to fund a small business. I’ve just never been that brave to do it. I’ve always been afraid of the resulting debt.

The good news here is that your business is growing. The reality is that it is at a huge cost, the interest. Funding any kind of start-up on cards can be massively expensive and what you see now is simply the result.

If your credit is good you can look through the balance transfer deals here online and find one that works for you. You can then transfer your balances but you must keep your payments at the same or more than you are paying now.

When you do a low interest or 0% balance transfer the creditor will lower your minimum payment during that time so you are not actually paying off your debt. What they want to happen is for you to get to the end of the intro rate period and then jack your rates way up.

Alternatively, if you have some equity in your home, and good credit, you could look at a debt consolidation loan or refinancing some of your equity to pay off the cards.

Other options like debt settlement and debt management plans should be avoided right now in your situation. Let’s keep your good credit report and credit score good.

I’m not surprised that the lenders are not willing to make deals. While you are paying the minimums or just above the minimums you are the type of customer they want, a profit machine. You’ll pay and pay and pay but not make any progress towards actually reducing your debt.

I guess the last option is to continue to tread water right now and let your business grow more and hopefully fund your debt reduction in the future.

Big Hug!

@GetOutOfDebtGuy

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Read the full article at GetOutOfDebt.org, click here: Ginger Asks “I Started My Business On Credit Cards But It’s Hard to Make Payments”

People are often so confused or uninformed about debt management plans in the US that I wanted to share some truths with you. Here are the five biggest misconceptions people have about debt management plans, in no particular order.

1. Debt Management Plans Are Not Designed for You to Get Out of Debt

   Since the DMP terms are really dictated by the creditors a debt management plan is not really designed to get you out of debt.

   A true get out of debt plan would be created using your circumstances as the starting point and then crafting a plan to allow you to get out of debt from your starting point.

   The DMPs of today, with creditor dictated terms, doesn’t work like that. It tries to get you out of debt using what the creditor wants as the starting point.

2. Debt Management Plans From a Not-Profit Credit Counseling Group Are Not Better

   A debt management plan from a nonprofit, non-profit or not-for-profit charity is not any better or worse than from a commercial or for-profit company. Being a nonprofit credit counseling group does not change the basic security measures necessary for a safe debt management plan.

   A nonprofit charity like a consumer credit counseling office is not much different than a commercial company. Except for the following major issues.

   The nonprofit credit counseling company gets paid for collecting money from you on behalf of your creditors and does not want to “rock that boat” and fight back against creditors if that will reduce their favor or funding.

   The nonprofit credit counseling company “pretends” for the most part to be a charity when in fact they generate the majority of their income as debt collectors.

3. Most People Don’t Get Out of Debt Using a Debt Management Plan

   The majority of people that participate in debt management plans do not make it to completion and thus do not get out of debt using a debt management plan. This is not really a fault of the DMP provider but that a debt management plan takes years to complete and the debtors circumstances can change along the way.

   The majority of Chapter 13 bankruptcy plans fail to complete as well for the exact same reasons. The failure of debt management programs is due to life and time, primarily.

4. Bankruptcy is Often Better Than a Debt Management Plan

   Strictly from a time point of view, bankruptcy can be a better option. When you file bankruptcy the credit report recovery clock starts ticking immediately. In a debt management plan the history of you plan and payments can remain for longer since it can be reported from the date of your last payment.

   Bankruptcy also allows many to get a fresh start and a second chance to start over. Recovering from a bankruptcy is hard but not impossible and the breathing room people get after bankruptcy is often just what they need to move forward, faster.

5. Paying For Help to Get Out of Debt is Good

   The charitable debt management industry fails to inform you that they are paid by the creditors to collect money from you. There is no way around the fact that this can cloud their assistance because they are trying to please their pay masters and the clients at the same time. Which do you think gets the higher priority?

   When you pay for debt help the company you hire is motivated to work for you. You are the client and there is no confusion about who the allegiance is owed to.

Other Related Articles to Read

• Mark Writes In “I Need to Go Bankrupt in the UK”
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• I Really Screwed Up And Need Some Direction. – Chris
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• Are Debt Management Programs For Real? – Kim
• Can I Keep One Credit Card Open for Business in a Debt Management Plan? – Dave
• Federal Trade Commission Should Allow For-Profit Credit Counseling and Debt Settlement Firms to Assist All Consumers
• What to Do if Your Creditors And Bill Collectors Make You Really Angry
• New Concerns About 40% Credit Card Debt Reduction Proposal

Read the full article at GetOutOfDebt.org, click here: Five Inside Truths About Debt Management Plans (DMP) You Need to Know

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