A debt management program does not completely guarantee a scot-free existence. Yes, it is a great help in terms of debt relief, but it is not designed to be the perfect solution to eradicating all of an individual's debts. As in everything, there are still risks that exist.
What-if scenario: debt collectors
One of the most common concerns that debtors have in reference to DMP's is collection activity. Many debt relief agencies promise their prospective clients that they will no longer be receiving calls and letters from collection agencies hired by the creditors. Since they'll be dealing directly with the lenders, they say, collection calls and letters are sure to stop.
Unfortunately, enrollment in a DMP does not guarantee that all attempts of communication from collection agencies will cease. Even if all of the consumer's debts have been consolidated, bill collectors may continue collection efforts. They would usually reason that the debtor should deal directly with them, instead of the consolidation firm, because the account has been transferred to their possession. Collectors would also assert that in spite of the debt already being in the hands of the credit counselors, the customer still has full responsibility over the debt.
If you have ever encountered this situation, it may be quite the daunting task to get the collectors off your hair. One way to really stop the collection calls is to write a cease and desist letter to the agency, stating that you simply wish not to receive any contact from them. Once the collection agency receives the letter, it may take 10 to 14 days for your request to be processed. You may receive one more call from them, stating that they have received your request and will continue to send you correspondence on the matter.
What-if scenario: your credit report
When your account or accounts have fallen behind on payment, they will be reported as “delinquent” and will remain in your credit report for seven years. However, when an account is enrolled in a DMP, it will be reported as such on your credit report, and it does not have any drastic effects on your credit score. It will stay on the report until the account/s have been paid off in full, which usually takes around three to four years from the date that the debtor applied to the program. Credit bureaus typically ignore these notations, and these do not make a huge impact on how your credit score is computed.
Future lenders may also take this notation into consideration, but more often than not, they are more concerned about your credit score than on these comments. Through a debt management plan, an individual may actually have a credit score boost when a large portion of his or her loans have been paid off.
What-if scenario: debt management firms that need to shut down
An incident that you may not be able to control would be your debt management company needing to close down while you are in the middle of their program. Often, these companies will inform their clients about this matter in writing. They may either tell you that your account will be transferred to a different company, or that you may personally need to take action on your account to be able to get back on your feet. However, you may also be informed by a third party about the shutdown if a government agency has instigated the company's being out of business.
This is not the end of the road for you. If you have set up an automatic withdrawal for your DMP, you need to immediately contact your bank and requesting that the payments going towards the DMP be stopped. This way, you would prevent overdrafts and bounced check fees, which may prove to be another problem for you.
Being removed from a DMP in this manner also enables you to again deal directly with your creditors. You may explain the current situation to them, stating that the agency handling your DMP is going out of business. Furnish a copy of the letter that the debt management sent you, if need be. You can also request that they consider working with you on a payment plan. Ask if it would be possible for them to still grant you a lowered interest rate even without the DMP.
It is also imperative for you to obtain a copy of your credit report. This way, you are able to verify if there are late or even missed DMP payments. You may request your creditor to remove the information, but the end of the day, it is still their discretion to remove the negative marks or not.
The repercussions of having late payments because of your debt management company discontinuing its operations is the same as actually missing payments with them in the first place. It is very much necessary to make immediate actions to remedy the situation, especially with your creditors. You may still be able to prevent unneccessary late charges and fees that would be added on top of your balance. Taking quick action also allows you to stop having unneeded negative marks on your credit report.
It is crucial that an individual stay on top of the goings-on between the consolidation firm and their creditor. Just because the account is already with a consumer credit counseling service doesn't mean that he or she no longer has responsibility towards their loans. It is important to be constantly kept updated. Maintaining contact with one's creditor, even while under a DMP, not only helps a person monitor the movement of their monthly payments; it also shows the lender that they have good faith in dealing with their current responsibility of paying off the debt, in spite of unfortunate circumstances regarding their financial situation.