Posted by Lending Club :: July 20, 2007 @ 10:07 am

Debt Management Plans (or DMP’s) don’t have the best reputation, and for good reason: many are downright scams.

If your primary concern is your short-term credit score (i.e., over the next few years), you should probably find another way of dealing with your debts. A legitimate debt management plan will hurt your credit score.

If you mainly want to avoid bankruptcy, then a DMP might be just the ticket for you. A legitimate DMP can lower your interest rates, consolidate your debts, and help you budget your spending.

So how do you decide what’s hot and what’s not when it comes to debt management plans? Let’s take a look:

What’s Not Hot (bad debt management organizations)
• Companies that take your information and sell it to advertisers or other 3rd parties. Check the organization’s privacy statement. If it doesn’t have one, run away!
• Outfits that charge large upfront fees to get you into “the program”
• Companies that fail one of these 9 questions to ask DMP companies (thank you, FTC)

What’s Hot (good debt management organizations)
• Organizations that give you advice on options besides a DMP. When I first enrolled in my debt management plan, my counselor recommended bankruptcy because she saw that as the best option for me. I was stubborn and didn’t listen to her sound advice (but am now filing for bankruptcy). Work with a firm that considers your unique situation and does what’s best for you.
• Companies that have accredited or certified counselors. Ask about your counselor’s training or accreditation.
• Organizations that don’t use a sales pitch. Good DMP’s are not sold. A legitimate non-profit organization will do what is in your best interest. If you feel like you’re getting “sold”…get out.

Bottom line: Be very wary about sending any money to a debt management company. I ended up working with Consumer Counseling Northwest. You can find other NFCC offices here.