13 Questions to Ask a Debt Management Company

by Ron Haynes


With the current economic crisis bearing down on us, many people are making the wise decision to reduce or eliminate their debt. While it is almost always possible to handle the process of debt reduction on your own, there are timesĀ  individuals need to seek professional help in establishing a debt reduction plan. I personally used Consumer Credit Counseling Services (CCCS) back in 1996 to help me get a handle on debt, but I used them because I was scared, lazy, lacked the proper motivation, and was uninformed about how to negotiate with creditors. Things are a lot different with me today.

There is nothing shameful with using a debt management company, but there are some pitfalls you need to avoid. Many times, people going to a debt management or credit counseling firm are at their most vulnerable, which unfortunately makes them easy prey for dishonest people anxious to take what little the debtors DO have. In the process, the uninformed lose much more than money — they lose faith in other people, they lose their vision of living a debt free life, and they lose hope.

To avoid this situation, I suggest asking the following questions:

1. Will you handle my account throughout the process or will you assign or transfer it to someone else?
Some debt management companies will do anything to get you in the door only to send your information to another company down the road. Why? They make extra money on the spread between what you can pay and the lower rates they can negotiate with your creditors. When they send your account to another company or agency, they are, in essence, selling your debt to another company after taking a little off the top.

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My suggestion: go with a company with a commitment to helping YOU not just helping themselves. (see #4)

2. What happens if I see the need to stop the program in the middle or just suspend it for a while?
This is a big No-No with many debt management companies. They don’t want you to end the program or suspend your payments because you’re a cash cow to them. (see #10)

My suggestion: go with the company that offers the most flexibility.

3. How long do you keep my money in the bank before disbursing it to my creditors?
Nothing like a little float time, eh? The longer a debt management company can keep your money before sending it on to creditors, the more money they can make in daily interest.

My suggestion: go with the company that disburses the quickest. Anything longer than a day or two is unacceptable.

4. Is your organization for profit or non-profit?
I’m the first to tell you that there’s is nothing wrong with making a profit. Profits drive innovation and are the fuel that moves our economy in a positive direction. That being said, the profit motive is not always a good thing in a debt management plan in my opinion. I personally used a non-profit company to help me get out of debt so that I wouldn’t be worried about my money going to line someone’s pocket. Heck, it was already lining the credit card company’s pocket.

My suggestion: go with the non-profit and ask to see their charter.

5. How are you funded?
The company I used was funded through the YWCA and by donations as well as the government.

My suggestion: make a donation after you get out of debt.

6. How will my money be disbursed to creditors?
Especially when it comes to for profit companies, funds will be disbursed in such a way as to maximize their profit. That’s why they’re in business. Non-profits will disburse funds so that your time in the program is minimized unless you direct them otherwise. My payments were evenly distributed to each of my creditors until they were paid in full. Also ask if they plan to include the mortgage in their plan. Many won’t.

My suggestion: go with the non-profit …

7. Are your employees paid on commission?
If a company refuses to answer this question, move on. That is a bad sign! Do you really want to work with a debt counselor that is paid a commission on your misery? Not me. Putting employees on commission may be a sign you’re really dealing with a debt collector rather than a credit counselor.

My suggestion: again, go with the non-profit.

8. How long until I graduate from the program?
Ah, the really important question. Your debt counselor should be able to tell you exactly when you’ll finish the program. Give them enough time to negotiate with your creditors, though.

My suggestion: go with the counselor that is the most honest with you on the front end.

9. Are your counselors certified?
While not a mandatory requirement, it is very reassuring to know that your counselor has taken more classes than the “Welcome to the Company” class. For an agency to be accepted into the National Federation of Credit Counseling, they have to be accredited through the Council on Accreditation Standards so make sure your company is a member of the NFCC.

My suggestion: go with the company with the most accreditation and accolades.

10 . Will I have to sign a contract with you?
More than likely you will have to sign some sort of agreement, but a contract is different. A contract is only executable when an offer is made, accepted, and money exchanges hands between two people in their right minds and of legal age. An agreement becomes a contract once money exchanges hands. The difference in a debt management situation is “did you pay them any fees to handle your debts outside of dispersing your funds to creditors?”

My suggestion: if you are required to sign an agreement, have an attorney look it over and don’t pay a fee.

11. Are you licensed to offer debt management or credit counseling services in my state?
Different states have different requirements so it’s best to check with your state’s Attorney General and your local Better Business Bureau to investigate the company you’re interested in.

My suggestion: use only a licensed company and don’t be afraid to ask!

12. How will you safeguard my personal and financial information from identity theft?
I cannot imagine anything worse than trusting a debt management company with your personal and financial information only to have them negligently fail to secure it from identity thieves. Demand to know what safeguards they have in place to prevent identity theft.

My suggestion: only use a company that will keep your information as secure as possible.

13. Can you provide references?
Ask to speak with people who have already completed their program. Many people won’t allow their names to be used for this purpose, but an active agency will always have someone who can vouch for the legitimacy of their programs. Speak to as many as possible and ask questions like:

  • Did the company live up to your expectations?
  • What do you wish you had known that you learned later?
  • What would you do differently if you were starting the program today?
  • What resources did the company have for you once the program was over?

A really good company will help you draw up a budget, learn to avoid credit cards (my company cut them up in front of me!), help you start an emergency fund, and teach you the importance of saving.

Make sure you avoid companies that:

  • Make wild promises on the radio, in print, or on television.
  • Claim to raise your credit score to a stellar level … overnight.
  • Guarantee they can eliminate any unsecured debt.
  • Say you can pay off debts for “pennies on the dollar.”
  • Require significant monthly service fees.
  • Demand that you pay them a percentage of the savings they negotiate for you.
  • Tell you to stop making payments to your creditors.
  • Claim that creditors never sue consumers for non-payment of unsecured debt. (HA!)
  • Promise that using their system will have no negative impact on your credit report. It might show that you’re enrolled in a debt management program. Mine did.
  • Claim that they can remove accurate negative information from your credit report. Only inaccurate information can be removed legally.
  • Demand account numbers or other financial details before discussing its services or any fees.
  • Claim that they can lower your monthly payments by 30 percent to 80 percent.
  • Promise that they can get you out of debt easily. Nothing worth doing is ever easy.
  • Are reluctant or even slow to provide the organization’s business name and address.
  • Insist that you take an immediate action. Acting without thinking is what got you in this mess in the first place, right?

About the author

Ron Haynes has written 988 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.