Misconceptions About Credit Counseling and Debt Management Plans

The two dominant myths about credit counseling and debt management plans are that (1) they are magic bullets to eliminate your debt, without exception, for pennies on the dollar; and (2) they are rip-off operations that will charge you onerous fees, take your money and run, leaving you in worse shape than you were before. Neither is true, although some of the worst credit counseling or debt management agencies can somewhat resemble #2.

The fact is that credit counselors and debt managers cannot be painted with one broad brushstroke. There are good ones and there are bad ones, and the only way for you to differentiate between the two is to be informed. With that said,  you need to be cognizant of the many misconceptions regarding credit counseling and debt management plans outlined in this article.

Credit Counseling and Debt Management are the Same Thing – WRONG!

The truth is that debt management is just one element of credit counseling. The most basic form of credit counseling is when a client develops a budget plan with his credit counselor in order to avoid getting into debt. In practice, however, most people don’t stumble into a credit counselor’s office until they’re already deeply in debt. Thus, most are in need of a debt management plan, which is a method of consolidating all of their bills under one, reduced interest rate payment, handled by the credit counselor. Although they often are, the terms “credit counseling” and “debt management” should not be used synonymously, and you need to be aware that there is a difference between the two or else you may be confused while looking for the right financial professional to meet your needs.

Credit Counselors Can Cut Your Payments in Half (or More!) – WRONG!

Be wary of credit counselors who make promises that are too good to be true. In the industry, this is known as OPUD – over-promise and under-deliver – and it is an unscrupulous sales tactic that takes advantage of people seeking debt relief. In reality, the best you can expect is for your bill to be “re-aged,” meaning that if you’ve missed two $150 payments and you now owe a $450 payment, the two missed payments can usually be deferred, without extra interest or penalties. Furthermore, credit counselors will work with your creditors to lower your interest rates as much as possible.

You Can Easily Do it Yourself Without Professional Help – RIGHT OR WRONG?

While it is true that you can theoretically do anything that a credit counselor or debt manager can do, the fact is that if you’re like most people, you will lack the gumption to make the tough phone calls to people you owe money. If you lack the will, then help from a credit counselor is a smart idea. Furthermore, even if you have the moxie to make the calls, do you know exactly what to ask for? Credit counselors are old pros at this stuff and creditors usually don’t waste much time in giving in to them. You should probably focus on what you do best – working at your job, spending time with your family, enjoying your hobbies – and leave the debt management to the professionals.