Specialized Needs In Debt Counseling

By Michael Killian

The consumer that has good credit and/or needs to maintain lines of credit needs a Specialized Debt Management Service and possibly a specialized Debt Management Program (DMP).

There are literally millions who for job protection or expected status or any number of reasons absolutely must maintain credit - nurses, teachers, police and fire officials, city officials, mid-manager, and the list goes on. There are a few counseling agencies that can satisy these needs. But there are many who can not as you read in part 1, Traditional Counseling. You also read that one of one Specialized Debt Counseling agencies was Accelerated Debt Consolidation, Inc. That agency's founder, Jim Young, answered a lagrge number of questions for me to help clarify much of the mystery surrounding the difference between Traditional and Specialized debt counseling. (Please note, I am not associated with Jim or his company for any form of recompense.)

Mike: Jim, what type clients do you deal with? Many of our clients are Doctors, Lawyers, small business owners and professionals that have found themselves in a position where they owe very large balances at interest rates of from 19.9% to as high as 31% and are current on their accounts. While they are in fact maintaining their minimum payments, there is no way that they will ever be able to pay off these accounts at the rates they have and since January of 2006 when new minimum payment guidelines went into effect some are even having difficulty maintaining those minimums. Most of them have these high rates due to the “universal default” clauses in their card member agreement, not because they have been late. These types of clients will often times be discouraged from debt management by some of the old fashioned firms and are told that they don’t need a DMP because they are current and no “hardship” exists when in fact they are in very serious financial trouble.

Mike: Wouldn’t these folks be considered well off? Though they have impressive incomes and are current on the accounts, most have played the balance transfer game and the second mortgage game, which turns unsecured debt into secured debt and have run out of options for paying off these accounts in any reasonable time period. Make no mistake, these people ARE experiencing a HARDSHIP, they need help and there are millions of them in this country ranging from young adults to those in their 50’s and 60’s who have incurred high balances sending children off to college. There are endless scenarios we could tell you about that involve people with good credit in all age groups and income levels that need specialized, custom tailored debt management services.

Mike: What can you do for these folks that traditional organizations cannot? First let’s understand that when it comes to what can be done with interest rates, minimum payment requirements, bringing delinquent accounts current and which accounts can and cannot be handled in the program, THE CREDITORS ARE THE BOSS... it’s that simple. However all major creditors understand that consumers should be allowed to keep 1 or 2 accounts out of the program for business, travel and emergencies. These would include Chase, Citibank, Bank One, Bank of America, Discover and virtually all of the major credit card issuers. We are an approved debt management source with all of these banks and many of them review our policies each year when they conduct a due diligence review of approved agencies. No bank has ever told us that we are required to force clients to close all lines of credit. However when a client does leave an account out of the program it needs to be with a separate bank than whatever bank or banks that they did include in the program. In other words if a client had 3 accounts with one bank they would have to include all 3 accounts with that particular bank in the program. They could then keep an account from a separate bank out of the program for business.

Mike: So I am clear on this, all credit cards do not have to be surrendered? Creditors understand that if a card member travels on a weekly basis for a job or business the client would have to have a credit card for car rentals, business, travel and essentials that one must have a credit card for. Quite simply, each individual bank is only really concerned with their own policies and how THEY are going to get paid back what is owed them. If a client has 3 accounts with creditor “A” all at interest rates of 24% to 29.9% then all 3 of those accounts would have to be either excluded or included in the program. Now let’s say that the client has another account with creditor “B” at an introductory rate of 2.9% that is at that rate for 6 more months. Let’s also assume that creditor “B” offered 9.9% for the DMP. We would not want to include creditor “B” for at least 6 months because the 2.9% would go to 9.9% as soon as the DMP proposal was accepted. It would be in the client’s best interest to handle creditor “B” on his or her own until the introductory rate expired and then add the account to the DMP at that time. If the client were forced to close the account with creditor “B” immediately his rate would also increase just by closing the account. As I said the creditors themselves understand that DMP clients may need at least 1 account to continue functioning properly with a job or business obligations and individual creditors are really not concerned with what a DMP client is doing with other creditors as long as their particular requirements are being met. In the past many firms required DMP clients to include all accounts because it would result in more “Fair Share” for their firm and they would claim that the creditors required it. This is not true.

Mike: What steps generally need to be taken to minimize any damage to credit as a result of the DMP? Contrary to popular MYTH’S that are continuously reported by so called “financial experts” all over the country, debt management does not ruin your credit and is by design a means of preserving your credit. Some creditors like Discover and Household Bank will report “Credit Counseling” or “DMP” on a client’s credit report. That entry on the report will only remain there until the client is finished with the program. The entry itself is put there to prevent clients from obtaining additional REVOLVING accounts while they are enrolled in the program. The entry itself DOES NOT DROP THE CREDIT SCORE. After a client has been enrolled in the program for a significant period like 12 months and we can show a positive transaction history, we can actually use that history to get them approved for other types of credit like mortgages, 2 nd mortgages and car loans. In the past 5 years we have provided literally hundreds of letters to mortgage lenders that have served to get our clients approved for mortgages while they are still enrolled in the debt management program.

Mike: What steps are taken at your firm to minimize credit damage for DMP clients? Once it is determined that a client is going to enroll in the DMP and is concerned about his or her credit rating there are many steps to be taken that require quite a bit of additional attention and work. Jointly with the client, we determine which accounts are to be included that would be in the best interest of the client. This issue involves a lot more than just requiring them to “include everything”…that would be easy. Our counselors first analyze the client’s budget and then address any special circumstances such as the possible need to keep 1 or 2 accounts out of the program for business, travel and emergencies. If the client is maxed out on all of their existing accounts it may be necessary for them to obtain another credit card for this purpose before they get started. This can be crucial for someone that really needs 1 credit card to function because if one or more of their creditors report that they are in a DMP they may not be able to get a card once the DMP is underway”. (note : check with the companies at the following 2 links for best credit card offers) www.debtsmart.com and www.cardratings.com Once it is determined which accounts are to be included, the accounts need to be closed by the client prior to the submission of proposals. This is so the accounts will show as “Closed By Consumer” on their credit report not “Closed By Credit Grantor”. When a DMP client has 10 accounts in the program and they all show “Closed By Credit Grantor” that would throw up a huge red flag to any prospective creditor in the future that checked their report. If proposals are just sent out to the creditors without first taking this step all accounts will show “Closed By Credit Grantor”. Due dates need to be adjusted in many cases before the submission of proposals to prevent any late charges after the client starts making their single payment through the program for all of their accounts. If clients are current on their accounts when they enter the program as most of our clients are, the creditors allow one due date change per year. This can be a bit tricky but we know how to instruct our clients to properly rearrange due dates before they get started to prevent late charges and protect them from being reported late. We disburse payments DAILY not twice a month and we do it electronically to ensure that billing cycle problems do not occur. If billing cycle problems do occur we can get them adjusted once proposals are accepted but handling it ahead of time is the best practice. If the client really needs to be sure to maintain their credit due to a situation where they may be applying for something like a mortgage within a specific period of time some accounts may have to be excluded. An example would be American Express accounts. American Express participates in the DMP however they do not have their own debt management department that processes proposals. American Express farms out their DMP’S to NCO in Ohio. NCO is a collection agency and sometimes accounts will be reported as being in collections rather than the DMP. For this reason some clients that are intent on preserving their credit may have to leave their American Express accounts out of the program. Some creditors require an additional form along with the standard DMP proposal. It is called an Income/Expense Analysis. If these are not completed properly it can result in rejected proposals that in turn can result in late charges. There are many additional steps that must be taken when servicing DMP clients with special needs especially the more sophisticated ones. We have proven that as long as the creditors requirements are met these types of clients can get the service that they need while minimizing damage to their credit and maintaining their dignity”. Handling DMP clients with special needs requires a tremendous amount of additional pre program planning, time and work. This is why most firms do not want to get involved with these issues. We do get involved and that is why we have an 81% retention rate. Nobody has ever left our program for any other reason than inability to maintain the payments completing the program or paying off accounts in full.

Since the above interview, Jim has also passed on the following thought. Since January of 2006 the required minimum payments on accounts through the DMP are now lower than what consumers are required to pay directly to creditors on their own if they have high rates. This is due to the fact that creditors were required to raise minimum payments on revolving accounts under Federal guidelines. This has now created a very sticky and complicated situation when clients begin their DMP because if the proposals are not accepted when the client makes their first payment through the agency, the payment made may be less than what was required to the creditors from the client directly. For this reason proper coordination of due dates, when the proposals are submitted and other factors must be addressed up front to make the clients transition from direct payments to the creditors and their payments through the DMP a smooth one. I recommend folks additionally read Accelerated's Counseling CAUTION Page.