For People on Debt Management Plans: 

A Must-Do List

December 2005

Reputable credit counseling organizations employ 

counselors who are certified and trained in 

consumer credit, money and debt management, and 

budgeting. Those organizations that are nonprofit 

have a legal obligation to provide education and 

counseling. 

But not all credit counseling organizations 

provide these services. Some charge high fees, not 

all of which are disclosed, or urge you to make 

“voluntary” contributions that can cause you to 

fall deeper into debt. Many claim that a debt 

management plan is your only option before they 

spend time reviewing your financial situation, 

and offer little or no consumer education and 

counseling. Others misrepresent their nonprofit 

status or fraudulently obtained nonprofit status by 

misrepresenting their business practices to regulators. 

The Federal Trade Commission (FTC), the 

nation’s consumer protection agency, and some state 

Attorneys General have sued several companies that 

called themselves credit counseling organizations. 

The FTC and the states said these companies 

deceived consumers about the cost, nature, and 

benefits of the services they offered; some companies 

even lied about their nonprofit status. Several of 

these companies are now going out of business. 

Similar companies also may be shutting their doors, 

even though they haven’t been sued by the FTC or 

the states. That could be of special concern if you 

have a debt management plan with one of these 

companies.

Must-Dos for Anyone 

With A DMP

Organizations that advertise credit counseling 

often arrange for consumers to pay debts through 

a debt management plan (DMP). In a DMP, you 

deposit money each month with a credit counseling 

organization. The organization uses these deposits 

to pay your credit card bills, student loans, medical 

bills, or other unsecured debts according to a 

payment schedule they’ve worked out with you and 

your creditors. Creditors may agree to lower interest 

rates or waive certain fees if you are repaying through 

a DMP. 

The FTC has found that some organizations that 

offer DMPs have deceived and defrauded consumers, 

and recommends that consumers check their bills to 

make sure that the organization fulfills its promises. 

If you are paying through a DMP, contact your 

creditors and confirm that they have accepted the 

proposed plan before you send any payments to the 

organization handling your DMP. Once the creditors 

have accepted the DMP, it is important to:

FTC Facts

For Consumers Federal Trade Commission

For The Consumer

www.ftc.gov 1-877-ftc-help
If your DMP has shut down, 

consider working out a payment 

plan with your creditors 

yourself.

 make regular, timely payments.

 always read your monthly statements promptly 

to make sure your creditors are getting paid 

according to your plan.

 contact the organization responsible for your 

DMP if you will be unable to make a scheduled 

payment, or if you discover that creditors are not 

being paid.

You need to be aware that if payments to your 

DMP and creditors are not made on time, you could 

lose the progress you’ve made on paying down your 

debt, or the benefits of 

being in a DMP, including 

lower interest rates and fee 

waivers. Although creditors 

may have forgiven late 

payments that you made 

before you began the 

DMP, the creditors may be 

unwilling or unable to do 

so if payments are late after you have enrolled in a 

DMP. If you fall behind on your payments, you may 

not be able to have your accounts “re-aged” again 

(reported as current), even if you start a new DMP 

with a new counselor. That means your credit report 

will have “late” marks and you will rack up late fees, 

which, in turn, will lead to more debt that could 

take longer to pay off.

If Your Credit 

Counselor Has Gone 

Out of Business

What happens to your DMP if the credit counseling 

company that managed your debts shuts down? A 

counseling agency that is going out of business may 

send you a notice telling you that your DMP is 

being transferred to another company. Or it may tell 

you that you need to take some action to keep your 

financial recovery on track. If a government agency 

has filed an action against your credit counseling 

company, you may get a notice from a third party. 

If you discover that the organization handling your 

DMP is going out of business you need to:

 contact your bank to stop payment if you are 

making your DMP payments through automatic 

withdrawal.

 start paying your bills directly to your creditors.

 notify your creditors that the organization 

handling your DMP is 

going out of business. 

Consider working out a 

payment plan with your 

creditors yourself. Ask 

if they will give you a 

reduction on your interest 

rate without a DMP. 

 order a copy of your credit report. Check for 

late payments — or missed DMP payments 

— that may result from the company going out 

of business. If you see “late” notations you don’t 

expect, call the creditor immediately and ask that 

the notation be removed. Understand that they 

have no obligation to do it. 

If payments are late because the organization 

handling your DMP has failed to make scheduled 

payments, the consequences can be just as 

devastating as if you failed to make payments 

to the DMP. If you do not act quickly to make 

arrangements with your creditors, you could incur 

late charges that increase your debt, lose the lower 

interest rates associated with the DMP, and have 

“late” marks on your credit report.

2 FTC Facts For Consumers
Do not hire an organization that 

has not fulfilled the requirements 

for your state.

Important Questions to 

Ask When Choosing a 

Credit Counselor

If the organization you were working with shuts 

down, you may be able to work a payment plan on 

your own directly with your creditors. But if you 

decide that you need additional credit advice and 

assistance, or if you are considering working with a 

credit counselor for the first time, asking questions 

like these can help you find the best counselor for 

you.

1. What services do you offer?

 Look for an organization that offers a range of 

services, including budget counseling, savings 

and debt management classes, and counselors 

who are trained and certified in consumer credit, 

money and debt management, and budgeting. 

Counselors should discuss your entire financial 

situation with you, and help you develop a personalized plan to solve 

your money problems 

now and avoid others 

in the future. An initial 

counseling session 

typically lasts an hour, 

with an offer of followup sessions.

 Avoid organizations that push a debt management plan as your only option before they spend 

a significant amount of time analyzing your 

financial situation. DMPs are not for everyone. 

You should sign up for a DMP only after a certified credit counselor has spent time thoroughly 

reviewing your financial situation, and has offered you customized advice on managing your 

money. 

 If you were on a DMP with an organization that 

closed down, ask any credit counselor that you 

are considering what they can do to help you 

retain the benefits of your DMP.

2. Are you licensed to offer your services in 

my state?

 Many states require that an organization register 

or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not 

fulfilled the requirements for your state.

3. Do you offer free information? 

 Avoid organizations that charge for information 

about the nature of their services.

4. Will I have a formal written agreement or 

contract with you? 

 Don’t commit to participate in a DMP over the 

telephone. Get all verbal promises in writing. 

Read all documents carefully before you sign them. 

If you are told you need to 

act immediately, consider 

finding another organization.

5. What are the qualifications of your 

counselors? Are they accredited or certified 

by an outside organization? If so, which 

one? If not, how are they trained?

 Try to use an organization whose counselors are 

trained by an outside organization that is not 

affiliated with creditors.

FTC Facts For Consumers 3
6. Have other consumers been satisfied with 

the service that they received?

 Once you’ve identified credit counseling organizations that suit your needs, check them 

out with your state Attorney General, local 

consumer protection agency, and Better Business Bureau. These organizations can tell you if 

consumers have filed complaints about them. 

The absence of complaints doesn’t guarantee 

legitimacy, but complaints from other consumers 

may alert you to problems.

7. What are your fees? Are there set-up and/

or monthly fees?

 Get a detailed price quote in writing, and specifically ask whether all the fees are covered in 

the quote. If you’re concerned that you cannot 

afford to pay your fees, ask if the organization 

waives or reduces fees when providing counseling to consumers in your circumstances. If an 

organization won’t help you because you can’t 

afford to pay, look elsewhere for help.

8. How are your employees paid? Are the 

employees or the organization paid more if 

I sign up for certain services, pay a fee, or 

make a contribution to your organization?

 Employees who are counseling you to purchase 

certain services may receive a commission if you 

choose to sign up for those services. Many credit 

counseling organizations receive additional 

compensation from creditors if you enroll in a 

DMP. If the organization will not disclose what 

compensation it receives from creditors, or how 

employees are compensated, go elsewhere for 

help. 

9. What do you do to keep personal 

information about your clients (for 

example, name, address, phone number, 

and financial information) confidential 

and secure?

 Credit counseling organizations handle your 

most sensitive financial information. The organization should have safeguards in place to protect 

the privacy of this information and prevent 

misuse.

For More Information

The FTC publishes a series of free publications on 

credit and financial issues, including Fiscal Fitness: 

Choosing a Credit Counselor and Knee Deep in Debt. 

They are available at ftc.gov/credit, or by calling tollfree: 1-877-FTC-HELP.

The FTC works for the consumer to prevent 

fraudulent, deceptive, and unfair business practices 

in the marketplace and to provide information 

to help consumers spot, stop, and avoid them. 

To file a complaint or to get free information on 

consumer issues, visit ftc.gov or call toll-free, 1-

877-FTC-HELP (1-877-382-4357); TTY: 1-866-

653-4261. The FTC enters Internet, telemarketing, 

identity theft, and other fraud-related complaints 

into Consumer Sentinel, a secure, online database 

available to hundreds of civil and criminal law 

enforcement agencies in the U.S. and abroad.

4 FTC Facts For Consumers

For The Consumer Federal Trade Commission

www.ftc.gov 1-877-ftc-help

Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education