Frequently Asked Questions
What is a debt management program?
How does the debt management program work?
How much money can I save by enrolling into a debt mangement program?
How is a debt management program different than a loan?
Why is getting a loan to pay off your debt considered financial suicide?
Why would my creditors agree to lower my interest rates and monthly charges?
Why can't I just file bankruptcy to erase my debt?
How do I choose a credit counseling organization?
What is a debt management program?
The debt mangement program is associated with non-profit consumer credit counseling
organizations. Although it may sound like a debt consolidation loan, debt consolidation
is entirely different.
Unlike a debt consolidation loan, in a debt mangement program your debt is consolidated and your interest rates*
are reduced without the need for a loan. This is done through negotiating with your
creditors rather than taking on additional debt.
Debt mangement programs are a win win situation for the consumer. The consumer
gets their interest charges* reduced, their monthly payments minimized with the
convenience of paying all their debts in one monthly payment. By making consistent
monthly payments through the debt mangement program, consumers find themselves back on the road to restoring their credit
rating.
It is no wonder that the debt mangement program has become the number one recommended
way of dealing with excessive debt.
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How does the debt management program work?
A professional credit counselor will contact your creditors to get your interest
rates* and monthly payments reduced to an amount that you can afford to pay. ADC's
counselors have working relationship with these creditors and know exactly how to
get the best deal for you. For example, if you have a $5,000.00 debt at
21% interest rate, ADC's counselors will work with your creditor(s) to significantly lower your interest
rates and monthly payments.
Typically, ADC can lower your monthly payments by 10-40% while reducing your interest
charges.* More of your monthly payment will be toward principal instead of interest.
You no longer pay your creditors directly. All of your debts are organized into
one manageable, reduced payment to ADC. ADC in turn pays your creditors on your behalf.
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How much money can I save by enrolling in a debt management program?
ADC can lower your monthly payments and interest rates* for most of your unsecured
creditors. In some cases, ADC can even eliminate interest charges* altogether. The savings over the repayment
period are dramatic. Below is an example of the typical amount you might save in
interest charges if you used a debt consolidation service and owed a credit card
company $3,500.00:
Total payment not using service:
$7,069.98
Total payment using service:
$3,184.98
Amount saved:
$3,885.00
Debt free:
54 months
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How is a debt management program different than a loan?
You have seen debt consolidation loans advertised and they may look like a good
idea. These loans work by giving you a bank loan against your property, you use
the money to pay off high interest credit cards. Typically, you are required to
use the equity in your house as collateral. The problem is that most people who
are in deep debt do not have enough equity in their homes and the ones that do have equity
are concerned (rightfully so) about taking on more debt.
In order to reduce your debt, you need less credit not more. Increasing debt by
mortgaging your house is typically financial suicide. Many people report that re-financing
with a consolidation loan or a second mortgage pushed them over the financial brink.
Under these circumstances, the loan or mortgage you do obtain (if you qualify) will
have a very high interest, and though you will appear to be making progress, you
will only be digging yourself in deeper in debt.
A common myth is that debt consolidation loans are tax deductible. This is only
partially true. Interest paid on mortgages that exceed the value of the house, used
to repay credit cards or personal loans (called unsecured consumer debt) is not
tax deductible.
ADC's debt management program may be the right solution for you.
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Why is getting a loan to pay off
your debt financial suicide?
Let's say by pledging your house as collateral, the bank gives you a loan and you
pay off all your high interest credit cards and loans. So far so good; now you
only have the loan to pay off. BUT your credit cards now have a zero balance and
inevitably, you buy a few things here and there, and before you know it your credit
cards are back at the limit. Now you have to repay the consolidation loan and the credit
cards. Everybody says "No that won't happen to me" or "I'll never
do that" but people do this every day and end up worse off than when they started.
In a study of the efficacy of debt consolidation loans, the FDIC concluded that
"... some consumers will increase credit card and other consumer debt after a
debt consolidation package is completed, thereby weakening their ability to repay
outstanding debts and increasing the likelihood of bankruptcy."
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Why would my creditors lower my interest
rates and monthly charges?
Before you say "this sounds too good to be true," keep in mind that your creditors
are not lowering your interest rates and making it easier for you to make smaller
payments out of the goodness of their heart. They realize that if they don't help
you out a little, you may file bankruptcy and they will likely collect nothing.
Through a debt mangement program they can at least recoup the principal on the
debt.
In addition, you will notice that most credit counseling organizations are organized
as non-profit companies. This allows the credit companies to recoup a significant
portion of the lost interest charges through tax write-offs.
Take advantage of this great service. It seems to be one of the few true win
win situations out there for the consumer.
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Why can't I just file bankruptcy to erase
my debt?
You may feel your debt is overwhelming and bankruptcy is the only way out. Or, you
may feel it is the easiest way to start over. Bankruptcy may be your best option,
but it is something to consider carefully. A bankruptcy is the most deragatory mark you can put on your credit and it stays on your credit report
for up to ten years. In addition, you will pay much higher interest rates for every type of loan
or financing after filing bankruptcy.
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How do I choose a credit counseling organization?
You want creditors off your back. You want to relax and feel your finances are being
professionally managed and your credit is being restored.
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*In most cases based on the creditor's present Debt Management Program (DMP) rates