Credit counseling, was developed in the 1960s by creditors as a tool to help those individuals struggling with money management and difficulty paying their monthly bills. Credit counseling is available throughout the country by non-profit consumer credit counseling organizations. These organizations offer their services in local offices and by telephone. They are not lending institutions or collection agencies. They provide free community services and educational courses relating to various financial matters. These organizations can also offer you two specific types of debt relief plans.
- Debt Management Plan
- 60/60 Plan
Let us take a moment to review the different plans:
A Debt Management Plan allows you to consolidate all your unsecured credit cards, medical bills and other unsecured debts into one monthly payment. In most cases your monthly payments would be somewhat reduced. You will still be responsible for the entire debt. Many creditors provide voluntary concessions such as interest rate reduction and will bring your account back to a current status. Keep in mind each creditor is different and the actual concessions will very significantly from creditor to creditor. A Debt Management Plan typically only consolidates unsecured debt. You will still be responsible for negotiating terms with your secured creditors.
A Debt Management Plan will only work with unsecured accounts that are a few months past due such as:
- Credit cards
- Medical bills
- Department Store Cards
- Gasoline Cards
A Debt Management Plan cannot work with secured debts like:
- House Payments
- Car Payments
- Charged-off accounts
- Seriously Past-Due Collection Accounts
- Lawsuits and Judgments
- Child Support and Alimony
- Student Loans
- Past-Due Taxes
- Debts secured by real property
The credit counseling agency can also offer you a modified type of Debt Management Plan that is sometimes called a 60/60 Settlement Plan.
A 60/60 Settlement Plan allows you to settle 60% of your unsecured debt and pay it over 60 months. The recent change in the bankruptcy law allows credit counseling agencies to offer a 60% payment plan to your creditors over a 60 month time frame. This 60% proposal does not guarantee acceptance and the unsecured creditor may counter with an amount they would accept that is higher than the 60% proposal.
Meaning, if you owe $1,000 on a past-due credit card you could offer to pay 60% (which is $600). That $600 would be paid over 60 months. Keep in mind that not all unsecured creditors accept a 60/60 plan. Secured accounts like your house and car do not qualify for a 60/60 plan. Also, remember that while creditors may reduce interest rates in a Debt Management Plan or a 60/60 Settlement Plan they usually do not eliminate the interest entirely.
Legitimate credit counseling organization will also offer you significant educational resources and budgeting assistance. The main objective of credit counseling is to provide you with as much relief as possible from your existing debts and provide you with a budgeting mechanism to realistically deal with your other debts. Keep in mind credit counseling is one option, an option that may or may not be helpful in your particular situation. No matter how good an agency is, if you just don't have enough money to pay even the renegotiated amounts, or if assets substantially secure your debts then a debt management plan may not be the right option for you.
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