Caution: Before You Enroll in a Debt Management Plan

[Text: Warnings about Credit Counseling] Hi there. This is Michael Bovee with Consumer Recovery and I want to continue on with our credit counseling video series with some cautions or warnings about whether or not you should even go down that path. We talked about he suitability of credit counseling in the prior video what credit counseling is and how it works. It really does boil down to being able to qualify financially your monthly income with all your bills, the bills that are enrolled like credit cards. Add them all up and 2% of that total will be your monthly payment so it is kind of easy to do the math. What is kind of more subjective is should you and what I mean by that is if you commit to that plan you are going to be spending money, resources and time committed to that path over about a 4 or 5 year period. So if you are only marginally suited to a credit counseling service you get started, you got $20,000 fort the debt 2% of that and your new monthly payments $400 and it is really thin for you.

You are not saving money every month for emergencies because you won't be using these credit cards anymore. They are closed as part of your enrollment in the program. You have to be prepared for life happening around you because when does it not. It does. 6 months down the road if you paid $400 a month you paid $2400 and let's say in month 7 something does occur and you are not prepared for it. You miss a payment on your credit counseling plan the debt management plan. You lose the benefits often of the interest rate conceptions that the creditors grant you. Your lower payments are no longer sufficient to meet the obligation and the plan falls of the rails. So what happened? Well you wasted 6 months on a solution that was not going to work for you and $2400. What would that $2400 have done as an alternative? Well the average national cost of bankruptcy and this includes the attorney's fees and the current cost and everything is about $1800 if you are on the coastal cities that could range $2210 and sometimes while we are in some of the Midwest and smaller municipality, but if you filed bankruptcy chapter 7 the debt is gone and you get that fresh start. Everybody wants to avoid bankruptcy and I get that, believe me I get that. But sometimes it is the right decision to make and in this instance it could fall off your credit counseling plan you would have covered your bankruptcy and probably after 6 months in 3 months on the other side of it and already recovering financially.

That $2400 also could have funded 2 settlements. Let's say you had $20,000 wirth of debt and all of them 5 accounts $4,000 balances, $2400 might have settled 1 or 2 of your credit cards and you are almost halfway to a solution that might have only lasted 2 years. So it is important to not just to do the math, but to project. Credit counseling is generally best for someone who can meet that monthly payment that newer lower monthly payment, but also somebody who has a dependable and consistent income. Another caution and I will end the video with this.

You will not want to enroll accounts that are past a certain level of delinquency. Advanced delinquency is typically charge off or beyond. Charge off as it is used by credit card lenders happens about 180 days consecutive nonpayment so for 6 months. If you have got accounts that are charged off they no longer can be re-aged in one of the benefits of credit counseling we talked about in the prior video and if you do enroll them and let's say it is with a debt buyer or something like that and you fall off the plan, they might have reduced your interest rate with an agreement that hey everything is going to get charged up retroactively if you fall off the plan. Absolutely very little benefit to enrolling charged off credit card and other unsecured accounts came to a credit counseling service.

Given the fact that life happens and if you fall off not only did you lose a benefit but you probably didn't even end up paying down much of the debt if any when you enroll charged off accounts so be very careful about that. There are credit counseling agencies out there that will just throw Willy Nilly and rolled accounts in there. Be careful of who you actually work with in a credit counseling service because while many even do a lot of the same services, not all of them are created equal. We prefer Cambridge credit counseling a national firm that does outstanding work. It publishes all their data, their success rates, check them out.

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