(This is Part I of my new series on debt solution companies)
I have a great deal of research on what I call the “debt solution companies” for my book Deceptive Money. My objective was to find out what was really going on with these programs that claim to reduce interest rates, reduce payments, and reduce the overall time it takes to get out of debt. As I have written about in great detail, you have to be careful trusting any of these businesses that make up the credit industry. Although I am sure that legitimate companies exist, they unfortunately make up the minority.
Let’s focus on the debt management program or DMP. The process is simple. Typically a consumer will come across the marketing from a consumer credit counseling company that is going to solve all of their debt problems just by picking up the phone. The consumer will call the company for help with their credit card accounts. The credit counselors will take down all of their information and come back to the consumer with a proposal. The proposal will illustrate how long it will take the consumer to get out of debt staying on the current course. The proposal then introduces a debt management program as a solution. It shows lower rates, lower payments, and a reduced time period before the consumer is out of debt.
Let’s take a look at a real life example of a proposal that a listener sent me this past week. The chart below shows the comparison between her current situation and then the proposed debt management program or DMP.
So, what would you think if you first saw these numbers? Your first conclusion would be that you were going to be paying on this debt forever. According to this company, it will take you until August 2040 to get out of debt. You would probably feel hopeless. Anything looks better than your current situation. The second conclusion would be that the credit counselor was offering you a much better deal. Why wouldn’t you give it a shot?
Here is the sad reality of these proposals and I think of this business in general. This proposal is a total misrepresentation of the consumer’s situation.
I took the actual payments and interest rates on her debt (the same information that she gave the credit counselor) and ran the numbers myself. If she paid her current payments and interest rates for the duration of the loans, the following would be the reality.
They estimated it would be 2040 before her debt was paid. Actually it was 2016. They estimated that it would cost her total interest of $ 24,414.61. Actually it was $ 10,405.24. Could this be anymore misleading? Frankly, it makes me wonder if this could be considered fraudulent. After all, the following language was in the introductory e-mail encouraging her to sign up for the program:
“Money Management International/Consumer Credit Counseling Services (MMI/CCCS) has developed a projected repayment plan to save you $19,631.19 in creditor payments. A repayment plan through MMI/CCCS will also reduce the amount of time it would take to pay off your debts by 26 years. The repayment plan calculations are based upon the creditor balances and interest rates that you provided.”
I have all of the documents. She provided the credit counseling company with the same information that she provided me. You be the judge. I find it very difficult to trust any company that appears to be offering misleading proposals. Unfortunately, every DMP that I have researched looks the same way.
So, if these consumer credit counseling companies seem a little suspect to you, then what is the answer?
You can create your own debt management program. How do you do that?
PART II – Thursday May 14, 2009 : Who is the real problem – Credit Card Companies or the Person in Debt?
Tags: Add new tag, Bob Brooks, credit counselor, Debt, debt management program, Debt solution, debt solution companies, Deceptive Money, interest rates, misleading, Prudent Money, reduce payments, repayment plan
May 5th, 2009 at 10:39 am
creavat emptor!
May 5th, 2009 at 8:02 pm
well said Henry
May 13th, 2009 at 10:13 am
[...] this series on these debt solution companies, I am writing about the dangers of the debt management programs [...]
June 13th, 2009 at 11:34 pm
Bob I admire you giving out these resources to the consumers but if a consumer is stuck just paying the minimum payments and their interest rates averages around 15% on up, than what other solutions do they have to get those rates lowered especially when they have already attempted to contact their creditors requesting to reduce the rates down? There are plenty of bad surgeons that only operates on greed but when it comes to someones last hope credit counseling is the closes thing to getting them back on track wouldn’t you agree?
June 15th, 2009 at 7:54 pm
I would agree that credit counseling seems like the last hope. However, in many cases, the inability to get out of debt is more about being impatient and looking for a quick fix. I truly believe that if you apply what I write about in the book you can get out of debt. The problem is that CCCS appeals to so many because it is a quick fix. So, why isn’t it better than nothing?
First, they are giving you a proposal and putting you in a program based on numbers that they put together based on what you can afford to pay. The chances of the payment staying the same as well as the original proposal working out are slim. Keep in mind, that credit card companies can change the rules on these programs and they do.
Second, how can you trust an industry that produces proposals with inaccurate information, misleading information, and numbers that don’t even add up? You could almost come to the conclusion that it represents a lie to the consumer. I have seen to many of these proposals to know that something doesn’t add up. To be fair, I have not looked at every proposal put together. However, when everyone that I have looked over is misleading, then there is a problem. Plus, there have been numerous complaints filed against these companies.
Yes, it short-term solves a problem by putting a band-aid on it. However, the probabilities are high that the problem gets much worst over time making it a bad deal to begin with.
Show me a debt management program that offers guarantees with no fine print that states terms can change and I will show you a solution.
Thanks for your comment!!
I would agree that credit counseling seems like the last hope. However, in many cases, the inability to get out of debt is more about being impatient and looking for a quick fix. I truly believe that if you apply what I write about in the book you can get out of debt. The problem is that CCCS appeals to so many because it is a quick fix. So, why isn’t it better than nothing?
First, they are giving you a proposal and putting you in a program based on numbers that they put together based on what you can afford to pay. The chances of the payment staying the same as well as the original proposal working out are slim. Keep in mind, that credit card companies can change the rules on these programs and they do.
Second, how can you trust an industry that produces proposals with inaccurate information, misleading information, and numbers that don’t even add up? You could almost come to the conclusion that it represents a lie to the consumer. I have seen to many of these proposals to know that something doesn’t add up. To be fair, I have not looked at every proposal put together. However, when everyone that I have looked over is misleading, then there is a problem. Plus, there have been numerous complaints filed against these companies.
Yes, it short-term solves a problem by putting a band-aid on it. However, the probabilities are high that the problem gets much worst over time making it a bad deal to begin with.
Show me a debt management program that offers guarantees with no fine print that states terms can change and I will show you a solution.
Thanks for your comment!!
bob@prudentmoney.com
bob@prudentmoney.com
http://www.prudentmoney.com
1
January 27th, 2010 at 10:55 am
Thanks for the articles. I have learned a lot reading your site.
March 10th, 2010 at 11:13 pm
Great stuff. blog.prudenmtoney.com is amazing.