Credit counseling is an effective way to reach financial freedom. In consultations with a qualified professional, consumers are able to develop a plan that allows them to resolve their financial situation using methods that will match their long and short term goals.
A debt management program or plan (DMP) is a structured repayment plan that takes all of your obligations into consideration. It grows out of a complete budget analysis that includes the review of your short and long term financial goals. Once a working budget that handles all of your monthly expense is complete, each debt is thoroughly assessed. A repayment plan is then created that meets your needs and ability to repay and that will best ensure the creditors cooperation. Debt management plans last t 6 months to 5 years depending on the type and amount of debt. For the duration of the program you will make monthly payments to Credit Advisors. In accordance with the repayment plan proposal, these funds are then forwarded to your creditors. As part of the repayment plan proposal sent to all of your creditors, CA asks them to make concessions in recognition of your efforts to become debt free. These concessions may include reduction in monthly payments and interest. Our database includes over 50,000 creditors nationwide who have accepted our DMPs.
Our Certified Personal Financial Credit Counselors are trained in analyzing budgets and developing action plans that support the consumer in their goal of becoming debt free. As an independent third party, when we approach a creditor with a budget analysis and a proposal for repayment that represents a consumer’s best efforts, the creditors are very likely to cooperate. Creditors cooperate because they recognize the consumer is trying to fulfill their obligation and avoid bankruptcy. As part of their cooperation and support of community-based consumer financial education, creditors may, at their discretion, make concessions such as lower interest rates or payments. These concessions are available only to DMP clients of recognized counseling agencies. Often creditors will lower or eliminate late fees; reduce interest rates; adjust minimum payments; and adjust payment schedules- all with the goal of retiring the debt as quickly as possible at the most affordable payment point. Usually, a DMP created by a certified credit counselor and sponsored by an accredited credit counseling agency results in a positive outcome for both the creditor and the customer who owes the money.
Credit Advisors Foundation will assist you in obtaining and keeping every concession offered by your creditors. Whenever possible in a DMP, we work to keep the interest rates charged by your creditors as low as allowed. The beauty of interest reduction is that instead of simply paying the interest and barely scratching the surface of your debt, you can start paying down the principal immediately. In the same way that debt seems to snowball out of control, a successful DMP can yield surprisingly quick results, especially when considering how long it can take to repay a debt outside a DMP. Below is an example of what you might save in interest charges if you participated in a DMP and owed a credit card company $3,500:
Total Payment Not Using Service–$7,069.98
Total Payment Using Service–$3,184.98
*While results vary depending on your debt, in most cases savings are significant.
Most agencies want to only deal with credit card debt. Some restrict it further to only credit cards that participate fully in DMP and contribute Fairshare. Credit Advisors Foundation knows that your debt situation is more complex than that. Credit Advisors Foundation will also include debts such as personal loans and lines of credit, loans from friends or relatives, certain payday or delayed deposit loans, balances remaining after repossession, state or federal taxes, debts owed to former landlords or utilities companies, medical debts, or any unsecured debt.
Some clients opt to include secured debts such as student loans, car loans or mortgages when they feel the need for assistance in addressing their delinquency.
If the management of your everyday financial life would benefit from having creditor calls stop, reduced monthly payments, reduced interest rates and no more late fees, then debt management may be right for you. A Debt Management Plan (DMP) provides both a path to becoming debt-free and a time table to that financial freedom. All of this at a payment you can afford with a partner to show you the way.
After a full budget analysis and plan development, Credit Advisors Foundation will notify all creditors in the plan of your intent to repay your debt. At this time we request their cooperation with the repayment proposal. These notifications, called proposals, are sent either electronically or via U.S. mail. The information included in the proposal depends on the level of information required by individual creditors to secure their cooperation. Some are only interested in their proposed payment while other may request a copy of your budget or perhaps a list of all creditors involved.
At this time we also request that the creditors support your plan to become debt free by making concessions to the terms on their accounts. This may include reduction of interest rates and fees that will allow more of your monthly payment to be applied to the principle balance. This reduces your debt faster. We also request that the creditors bring your account back up to date, when possible, so that as your debt is repaid, your efforts are reflected in your credit file.
All of this will occur while you enjoy the convenience of one affordable payment, no more collection calls, on-line access to your account with Credit Advisors Foundation 24/7 to track your activity and regular monthly statements from the creditors confirming receipt of payments and progress toward becoming debt free.
While Credit Advisors Foundations’ primary focus is consumer financial education such as budgeting, pre-bankruptcy education and housing counseling, we do offer debt management plans for persons who need that assistance. We have in the past arranged for settlements on individual accounts for clients that are enrolled in a Debt Management Plan but most clients pay their financial obligation through the organized and consistent applications of monthly payments until they reach the state of being debt free.
In the mean time there are some things you should consider regarding debt settlement.
Documentation is everything in debt settlement. Prior to any funds being paid to a creditor who is entering into a settlement arrangement, you should have the terms of the settlement in writing, on the company’s letterhead, signed by an employee who has authorization to arrange settlements. The terms should include the amount of the original debt, the amount of the settlement, how the settlement is to be paid, to whom, by what date and how the settlement will be reported to the credit bureaus. Once the funds are distributed, you will have no ability to ensure the terms are kept unless you have it all in writing in advance. Some settlement companies cannot provide you with this information because they perform their settlements in a “batch” and lack documentation on an account by account basis. Settlements in your favor can generate a tax liability as the creditor is required to report all amounts forgiven (over a certain amount) to the IRS as income. So if you had a debt of $10,000 with a credit card and settled the debt for $6,000 the credit card company would send in a form 1099 to the IRS showing the $4,000 that was forgiven as income for you. This would create an increase in your tax liability. This is an area where you should consult a tax advisor as an increase of $10,000 to $15,000 in income could cause your overall tax liability to increase to a rate that would make settlements ill-advised.
Some creditors will not even discuss settlement arrangements on any account that has not yet reached a charge-off status (I9, R9 or O9). On a scale of 1 to 9 with 1 being positive and 9 being negative, you might have to have negative credit to even begin negotiations for settlement. These ratings can remain a part of your credit file for up to 7 years from the date of last activity, depending on your location. Your employment, living situation and other obligations may make the fall out of a settlement not be worth the money written off.
You should consider your housing plans in the near future. Some (not all) mortgage underwriters will require you to go back and pay any amounts settled before they will approve an application for a mortgage. At the very least, they will want documentation of the arrangements and proof the terms were kept.
You should consider your employment plans in the near future. If you are employed in a field that requires bonding, licensure, or security clearances, settlements can be a potential problem. Another area where having the correct documentation can be everything.
Settling the accounts now will still require you to monitor these accounts in the future. You will have to ensure that they are correctly reported to the credit bureaus according to the terms negotiated. This is the largest problem with settlements. The vast majority of reporting to credit bureaus is done through automated methods. Those automated methods are created to swiftly and accurately transmit information in a standard format on the vast majority of the accounts from a particular creditor. Accounts upon which settlement arrangements are made would probably make up less than a tenth of 1% of all outstanding accounts held by a creditor. They are by no means the standard format. Credit reports are notorious for containing errors, mostly because tracking every credit transaction for every adult in the country is a daunting task. You may be required to send documentation to the credit bureaus to update the information on the settled accounts several times during the life of those accounts on your credit file. Again, documentation is everything.
With the recent growth of the third party debt buyer industry, keeping complete documentation will only become more and more important. Third party debt purchasers will buy blocks of old debts from creditors for cents on the dollar and then turn around and try to collect the debts. Some of the debts will still be valid, but some may have been included in bankruptcy, settled or have expired statute of limitations. When you are contacted by a collector in 10 years, you will need the documentation still. Never get rid of the documentation on settled accounts.
You will be able to obtain a credit card after settling your debts. The true question is under what terms will you be able to obtain the credit card? You may have to start over with a secured card or with cards that carry unfavorable account conditions for interest and fees. Over time and with conservative use you will be able to obtain credit cards with better terms, but in the short term you must consider the higher cost of obtaining new credit against the savings achieved through settlement.
While I do not believe settlements are right for everyone, you may determine it is the best option for you after careful review of your current finances, housing, employment, familial and future credit needs. If you would like to have someone review your current situation, please contact one of our certified credit counselors at 800-942-9027.
A certified personal finance counselor reviews your unique situation with you. Together you will develop an action plan to address your concerns regarding debt and credit. The process includes the creation of both long and short term goals and identifying the steps needed to achieve them.
If, after a budget analysis and counseling session with a certified counselor, you decide a DMP is your best course of action then a complete financial plan and agreement is sent to you. It will include all of the information from the counseling session, a full overview of the DMP, information on what actions you are expected from you, your rights ad responsibilities and the responsibilities of the counseling agency with clear expectations of what the creditors will do.
You will need to complete and return the paperwork. As soon as your paperwork is received, your account will be created and assigned to a specific Account Manager who will be your guide on the road to debt free living. This is when the creditors are notified and the plan is set in action.
There is some similarity in that both aim to address your financial crisis and achieve a resolution to your debts. Both involve developing a budget. Both require consumer education. Both set up payment plans based on what you can afford monthly. Both will put an end to the collection activity from creditors.
The differences show up in the execution, outcomes and consequences.
DMP’s are private agreements between you and your creditors. They are voluntary on both parts. You promise to make regular consistent payments to retire your debt and your creditors cooperate by making concessions that allow you to become debt free in 3 to 5 years.
Bankruptcy creates a public record of the debts and the court supervised repayment plan. There will be hearings requiring your appearance. A notation in your credit file will remain there for up to 10 years from the date it is discharged.
Many people considering DMP do so because they are already facing challenges managing their current debt load including penalty interest and fee assessment. When monthly payments are calculated on credit card accounts, all creditors must use a formula mandated by the OCC (Office of the Comptroller of the Currency) that allows for the minimum monthly payment to cover that billing cycle’s interest assessed, fees incurred and at least some reduction in principal balance. When rates and fees are high so are monthly payments.
By requesting interest and fee concessions from creditors that are included in the DMP through Credit Advisors Foundation, your monthly payment requirement per account can be reduced at the same time that more of the payment you send is applied to the principle balance. This allows for greater balance reduction per payment resulting in a faster debt payoff: three years instead of ten or maybe five years instead of twenty.
Yes. Only a very few creditors have ever sent back payments over the years. Ultimately, the goal of creditors whose account holders are experiencing difficulties is to be repaid. It doesn’t matter what type of creditors it is –credit cards, old utility bills, medical bills, collection agencies, third party debt buyers, or personal debts. Our creditor database has over 134,000 creditors to whom we have issued payments. Our Account Managers know how to manage these plans and are willing to negotiate with the most stubborn of creditors.
The phone calls should cease once the repayment plan proposals have been accepted. Some creditors process them faster than others so this could take anywhere from 72 hours after the proposals are sent to a few weeks. Creditor contact immediately after you have enrolled is usually due to the creditor response time. If you have a creditor who continues to contact you, let your Account Manager know. The Account Manager will follow up with the creditor to find a resolution.
You cannot separate signing up with any credit counseling agency from your payment history when looking at the effect credit counseling has on your credit report or your credit score (which is a different from a report). The individuals who seek out our assistance have a variety of problems and credit reports. Some have already been taken to court or have had several accounts deemed charge-off debts and some have perfect credit reports but have only been able to keep all payments current by utilizing cash advances.
When someone enters a Debt Management Plan it is only after a careful assessment of their income, living expenses and debts. The plan will be based on what can actually be paid to the creditors, equitable divided based on types of debts and security, after living expenses are covered. Many times this means that the proposed repayment plans to the creditors are lower than the creditors contractually set minimum payments. While the amounts of the payments are within the range of payments acceptable to the creditor for their clients in Debt Management Plans, many of the benefits provided by creditors who cooperate do not kick in until the account has received three consecutive payments on the program. The creditors want to be certain that the client is serious about getting out of debt and remaining on the Debt Management Plan until the accounts are paid in full before they provide all of the agreed upon benefits. There are many reasons for this. The creditors are agreeing to waived fees and charges, reduced interest and are providing the chance to “re-age” the accounts. This represents a loss of potential income for them in exchange for the eventual pay-off of the account. Re-ageing an account is a serious business. Many credit providers will perform this function only once every 5 years or sometimes only once in the life of an account. Re-aging an account brings the status back to a “1” (as in R-1 or I-1), sets the minimum payment at the amount provided for in the Debt Management Plan and removes the delinquency on the account (not the historical delinquency-only time can fix that). This means that over the course of the Debt Management Plan (usually 36 to 48 months), if the clients make their payments as agreed, they end up with a record that shows a perfect payment history during that time.
Now, if you started out with some dings on your credit, this means that your credit report is only going to get better with time. If you have charged off accounts or legal actions, these cannot have their status changed, only payments negotiated and completed- still leading to an improvement in your report. If you were the person who was cash advancing to keep all of the accounts up to date, then you will have some dings added during that first three months before the accounts qualify to re-age. Short term, this could represent a drop in credit score. The advantage is the debt has stopped increasing since the cash advances have stopped. “Perfect” credit achieved in this way is not showing the truth of the situation. For persons who can see a financial crisis coming in the form of a plant closing or birth of a child, planning can minimize the negative impact of the crisis.
Credit Advisors Foundation performs check ups on all of our clients’ credit reports and credit scores every 6 months to monitor any impact the plan is having. We have discovered that scores usually improve over time and on average the longer the client sticks to the plan the more the credit score increases.
So the impact of credit counseling on a credit report can be as varied as the reasons people seek out counseling and the state of their credit at the beginning of the session.
The goal of credit counseling is to help you build a more financially secure future. Becoming debt free is part of that goal. If you are on a DMP, creditors make concessions on terms and interest rates to help you become debt free. In exchange they have expectations. They expect the proposed payment at regular intervals and a sincere effort to retire the debt.
Continuing to use the cards sends the message that you do not intend to become debt free and that you feel your budget can meet the increasing obligations you are creating. Creditors will withdraw any concession they have made as part of the repayment plan if they see new charges or new debts being added to your credit file. The perception is that if you can afford to meet other demands then they should receive the full original term of their account with you.
Credit Advisors Foundation strongly recommends that you cease all charging while on a DMP.
Credit Advisors Foundation will include most kinds of consumer debt into a Debt Management Program, including the following: credit cards (Visa, MasterCard, Discover and American Express), department store cards, hospital and medical accounts, finance companies, collections agencies, NSF checks, and many others.
You, the client, will still pay your rent, utilities, groceries, insurance, and other living expenses while we handle the rest.
There is no charge for the credit counseling, budget analysis or action plan development that occur before you decide to join a DMP. All of that information gathering and goal identification must be done prior to determining if DMP is the right choice for you.
If you decide that it is the right path, there are three factors that affect the cost of a DMP.
- Credit Advisors Foundation complies with all statutes and guidelines for the states in which our clients reside
- Credit Advisors Foundation has a self-imposed cap on monthly fees even if the state allows a higher charge
- The driving factor over all other is affordability for the client
When your DMP is created as part of a thorough budget analysis and action plan development, the very last item that is worked into the plan after all of your living expenses, household debts, and creditors included in the plan are accounted for is the monthly fee for management of the plan.
This monthly fee and all the other details of the DMP are part of the full disclosure that you will receive as part of the paperwork you will be asked to review before you decide to enter into DMP.
The good news is that we offer free credit counseling. There is no fee for help with budgeting and action plan development. If a debt management plan is needed, a monthly fee based on your budget will be recommended that will allow affordable debt help.
Although technically possible, it’s like asking if you could build your own bridge across a large river. Given the time, knowledge, and resources, you very well could negotiate your own debt management plan. But, if you want to save time, frustration, and money, it’s best to let seasoned professionals do the work for you. Remember, a successful credit counseling service such as Credit Advisors Foundation has years of experience and contacts in the field, working with creditors on a first name basis. Some creditors actually finance a portion of the administrative costs of a debt management plan and provide the best concessions through such a program, so in many ways it does not make financial sense to negotiate it for yourself.
If you are experiencing any financial pinch, “no” and here’s why:
To obtain a low interest loan to pay off debts usually means pledging the most valuable item a person owns, such as their house. With this low interest loan one can then pay off high interest credit cards and concentrate on paying off the secured house loan. Now, while this option may be good for some people, there are a few fundamental problems:
- You are betting your most valuable item in the world that you can make all your payments on time, your home. Although almost all debt consolidation programs insist on timely, regular payments, they are likely to be more willing to work with you if you need to make one or two late payments due to a medical or some other emergency. Pledging one’s very home to pay off excessively high interest payments and debt should be avoided.
- By taking out a loan, you’re not taking advantage of the breaks on interest and sometimes even the principal that a credit counseling service can negotiate on your behalf.
- Finally, research shows that within a year after consumers transfer credit card debt to a secured loan the credit cards continue to be used and actually have higher balances than before the home loan. The FDIC concluded, “…some consumers will increase credit card and other consumer debt after a debt consolidation package is completed, thereby weakening their ability to repay outstanding debts and increasing the likelihood of bankruptcy.”
Credit Advisors Foundation has been offering credit counseling and debt management services since 1991. We know this process works to help consumers become debt free. The creditors, after years of study and seeking out many alternatives, have come to this same conclusion. Consumers who have a plan to retire their debt at a repayment rate they can afford are very successful in becoming debt free. Debt free means the creditors are repaid in full. Being repaid in full with some concessions is much better for the creditors than the on-going expense of collection activity and possible total loss in bankruptcy when a consumer is in trouble and they have no real plan to address their full debt situation.
In the end, all creditors just want to be repaid. They will participate in the option that gives them the best chance of repayment.
The only difference between secured debt and unsecured debt is that you have pledged some type of real property or valuable to be surrendered in the event that you are unable to meet the terms of the agreement. Many people think that only car loans or mortgages are secured but any type of debt can have security. Purchase Money Security Interests (PMSI) are held when you use the amount of credit extended to purchase an object such as furniture, jewelry, or home improvements.
If payments are not made promptly on a secured debt, the security (pledged item) can be repossessed. This type of debt can be included in a DMP but you must make certain your Account Manager is aware of the security interest to assure that the debt receives priority treatment.
Sorting through the hundreds of services out there claiming to offer financial relief seems daunting. Here are a few points that will narrow the field. Good credit counseling services will hold national accreditation such as that achieved by adhering to the strict standards of the Council on Accreditation (COA). The agency will employ counselors who are certified in personal financial management. The organization will not only have a positive BBB ratings but will have been around for many years. A wide spectrum of services will be offered such as HUD approved housing counseling, EOUST approved bankruptcy counseling, involvement in community projects and easily available consumer education and resources. No solution should be offered until a complete financial assessment is completed and all options reviewed.
Credit Advisors Foundation has been in business since 1991. We have thousands of satisfied clients nationwide. All the bills are still in your name, and the creditor statements still come to you. Any payment that Credit Advisors makes on your behalf will show up on your statements from the creditors. You will also receive monthly statements from us (either by U.S. mail or email) showing how much you have paid and to whom the money was sent. In addition, as a Credit Advisors client you will be able to access your account as well as update your personal and account information on line at any time through our e-Progress member site access program.
If a collector calls you, tell them you have signed up with Credit Advisors Foundation. Give them your client I.D. number and the creditor telephone number, which is 402-393-3100 or 402-501-8234. Most creditors are happy to call us. In many cases, the creditors direct all contact to Credit Advisors Foundation once the proposal for repayment has been accepted. In the rare event a collector is persistent, you must be firm but polite with the collector. Do not promise to make a separate payment to them. Notify your Account Manager immediately that you are receiving collection calls so that the Account Manager can get to the root of the problem. It’s important to remember that Credit Advisors Foundation works directly with the counseling division of most large creditors. Many of the collectors that call you aren’t even aware the counseling department of their company is making arrangements on the account until the account profile is updated and the collection department can no longer access the account. Your Account Manager will make sure all the necessary notifications are made.
Credit Advisors Foundation recommends that all creditors be included in the plan for several reasons:
- If your goal is debt free living, then all debts must be paid off
- All creditors are treated equally when they are all in the plan
- Continuing to incur debt on an account you “keep” is just shifting debt, not retiring it
- Creditors are less likely to cooperate with an overall debt program if they perceive that some creditors are receiving preferential treatment
- Programs where all consumer debt is included from the beginning are the most successful
Yes. Not only can you send more but Credit Advisors Foundation encourages it. When you are on a DMP the goal is to become debt free as soon as possible. Initially many people can only focus on reducing monthly payments down to a level they can afford. Once you have adjusted to the new budget and you have an emergency account set aside, it is in your best interest to pay down the debt as quickly as you can. So if you have a bonus, or overtime or a tax return that you want to use to reduce debt, contact your Account Manager to discuss strategy and make arrangements.
All accounts remain in your name at your address. You will be the first to receive any correspondence including monthly statements from your creditors. This is why we ask all of our clients to send us copies of their statements quarterly so that we may track payments and progress also.
Additionally, you will receive a monthly statement from Credit Advisors Foundation showing the payments sent to creditors on your behalf. You will also have on-line access to your account 24/7.
Credit Advisors Foundation puts the “management” in Debt Management Plan.
- Reduced interest rates allow more of the money you have available to be applied towards the balance
- When late charges are waived, that allows $25 to $35 more to be applied toward the balance instead of being applied to fees
- Regular and consistent payments create a steady decrease in the balances on your accounts
- Once a payment is set as an affordable amount, it is never reduced even if the minimum payment due decreases so that more money goes toward the balances.
- As soon as one creditor is paid in full, their allotted payment moves on to the “next in line” creditor to increase the amount the “next in line” creditor receives. More goes toward the balance of the “next in line” creditor accelerating the balance pay-down of that account.
What all of these points have in common is the word “balance”. Our focus is on reducing the balances of your accounts as quickly as you can afford with the cooperation of your creditors. It’s a team effort. This is why a debt load where you are struggling to make minimum payments will drag out for 20 to 25 years can be eliminated in less than 5 years.
- There are many agencies for whom up to 50% or more of their funding comes from creditors. This can create a conflict of interest between what the creditor wants and what is in your best interest.
- Fee structures should not be predetermined. Not every situation or program should be assessed the maximum fee allowed. Our fee is the last figure calculated in any plan so that it can be adjusted to an amount you can truly afford.
- There is a saying that “time is money” and CA believes this to be true when it comes to your funds. Instead of only disbursing your funds to creditors one day a month, CA disburses funds as soon as they are confirmed received. Multiple disbursement days every month means your plan works effectively.
- Each client has a specific Account Manager, who is a certified personal finance counselor, assigned to their plan. Our smaller counselor caseloads allow you to have one person who is familiar with your account assisting you to the successful completion of your plan.
- CA does not restrict the types of debts that can be addressed through our plans to just those that are easily managed. All debts can be included regardless of difficulty or whether or not the creditors provide support.
- Our e-progress portal allows you to have access to your account information 24/7/365. Moving? Want to update balances from recent statements? Want to check the last time a creditor was paid? It’s all available to you.
- The payment options at Credit Advisors are as varied as our clients. Timing of payments can be spread throughout the month. Payment methods vary from electronic transfers to money orders to allotment to payroll deductions. The choice is yours.
- Credit files are important tools. At CA we use these to monitor our clients’ progress, identify potential issues, and monitor creditor reporting. Most agencies do not monitor files.