In a debt management plan (DMP), the company offering the plan works with you and your creditors to develop a payment plan for your unsecured debts. The consumer deposits money into an account each month which the company uses to pay the consumer’s bills pursuant to the plan. (To learn about how a DMP works, see Debt Management Plans.) Unfortunately, it's far too easy to fall into a DMP scam, sign up for services you really don't need, or end up paying lots of money to the DMP agency that could otherwise be used to pay your creditors.
Before you sign up for a debt managaement plan, ask these questions:
1. Are you an accredited nonprofit credit counseling agency?
If you are considering a DMP, only work with a legitimate nonprofit credit counseling agency. Check on nonprofit status with the Internal Revenue Service. Make sure the company is accredited, usually by the Council on Accreditation (COA) or the International Organization for Standardization (ISO). Find out if any complaints have been filed against the company with your state attorney general’s office, the Better Business Bureau, or local consumer protection agencies. Ask if the agency is a member of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies – members are held to strict quality, financial, and ethical standards. (To learn more about picking a quality credit counseling agency, see Nolo’s article Choosing a Credit Counseling Agency.)
2. Are your counselors certified?
The counselors working for the agency should be certified. This means they have passed a certification exam that tests for understanding in areas such as counseling, budgeting, credit and consumer law, debt management, and bankruptcy. The exam should be administered by an independent agency.
3. Do you provide free information about your services (without requiring personal information from me)?
If the agency refuses to provide you with free, detailed information about their services, run the other way. Ditto if the agency first requires you to provide personal information such as your income, credit card account numbers, or balances.
4. Do you provide services other than a DMP?
A legitimate credit counseling agency will provide budgeting advice, financial counseling, referrals to other agencies, and advice about many other options for digging yourself out of debt. Beware of any counselor that recommends the DMP before completing a comprehensive counseling session, pushes the DMP as the only option for you, or reveals that he or she is compensated if you sign up for the DMP.
5. Will you teach me budgeting and money management skills?
As part of the DMP, the agency should teach you how to budget and manage your money. If the agency tries to enroll you in a DMP without first providing you with these skills, go elsewhere.
6. Are your services free? If not, what are your fees?
Many legitimate consumer credit counseling agencies provide free services, or charge fees based on a sliding scale depending on income. Some agencies charge for services – usually an up-front fee to set up the plan and then a monthly administration fee. These fees should be reasonable – no more than $50 to set up the plan, and no more than $50 per month to administer the plan (less if your monthly payment to creditors is less than $500).
7. Do you require “voluntary contributions” or “donations”?
Some agencies try to hide the fees they charge by calling them things like “voluntary contributions” or “donations.” If the agency is not up-front about the fees it charges, or appears to be hiding fees, take your business elsewhere.
8. Do I have to make payments into the DMP before my creditors accept the plan?
You should not make any payments into the DMP until you have independently confirmed that your creditors have accepted the plan. If the agency offering the DMP requires otherwise, it’s not a legitimate company.
9. How much will my monthly deposit be?
Before you enroll in the DMP, find out how much your monthly payment will be to creditors. If you can’t afford it, don’t sign up.
10. What debts will and won’t be included in the DMP?
The credit counseling agency should tell you, in writing, which debts will and will not be included in the DMP. If it won’t provide this in writing, then go elsewhere.
11. Will you provide me with a formal, written contract?
Before enrolling in a DMP, get everything in writing. If the company won’t put all details of the agreement in writing, find another agency.
12. How are your employees paid?
Ask how the company’s credit counselors are compensated. If the counselors receive a commission for enrolling customers in a DMP, be wary. And if the company won’t divulge how employees are compensated, go elsewhere.
13. Do you provide detailed account information each month?
The agency providing DMP services should provide you with monthly reports detailing the status of your accounts. If this isn’t provided as part of the plan, use another agency. Even if the company does provide monthly statements, you should periodically check with your creditors to make sure they are getting paid on time.
To learn how to negotiate with creditors on your own, see our Debt Settlement & Negotiating With Creditors area.