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If you’re struggling to get ahead, a reputable debt settlement program that adheres to current debt management laws, could help. Debt management programs might help you to avoid bankruptcy and lower your monthly debt obligations – so you can breathe a little easier.
In general, people who enroll in debt settlement programs often carry balances on several different accounts and have little to no cash available. A debt settlement manager knows how to work directly with your creditors to negotiate agreements that will lower the amount of money you currently owe. This can be helpful because negotiating with creditors alone can be challenging.
Once a debt settlement arrangement is made, you’ll no longer have to pay each creditor separately. Instead, you‘ll make one payment to your credit counselor – usually once a month – and the funds will be divided and dispersed to your various creditors until the new, agreed upon figures are paid off.
Know Michigan’s Rules Before Signing Up
Federal and state laws are in place to protect Michigan residents who are interested in working with a debt settlement manager. A few things to keep in mind:
Licensure & Accreditation
Companies that provide debt settlement services in Michigan must be licensed by the state and must maintain and submit accurate books and financial records in accordance with standard accounting rules and principles. Credit counselors are also required to pass a state exam within 180 days of employment.
Debt settlement companies operating in Michigan must set up a trust account and purchase a surety bond that equals or exceeds the total amount of the trust. This ensures that any money that you send to your debt settlement manager is protected and used to pay off your debts – no matter what.
Creating a Budget
Before signing a debt settlement agreement, your counselor must provide you with a free, written, detailed budget analysis to determine if debt settlement is appropriate for your situation. It is illegal to accept an account when a careful budget analysis indicates that a prospective client cannot afford the terms of the contract.
No Upfront Fees
If a debt settlement manager asks you for money upfront, stay away. They’re breaking the law. According to Federal Trade Commission rules, companies cannot charge fees or accept any type of compensation until after you review and accept the new settlement agreement and have made at least one installment. Fees thereafter should be agreed upon before you sign and should never exceed 15 percent of the total amount of your debt.
“Credit counseling, if done by a reputable organization, can be a lifesaver in helping address financial problems. The right credit counselor can provide personalized advice on managing your money and debt. With the rise in consumer debt, however, disreputable or ineffective credit counseling offers abound and can actually leave you in a worse financial position. Choosing a credit counselor should be done with care,” according to Michigan Attorney General Bill Schuette.
Credit counseling agencies must follow the regulations spelled out in the Michigan Credit Services Protection Act. Certain businesses are exempt from the act, including banks and lawyers.
Credit Counseling Steps
- Contact a credit counseling agency. The National Foundation for Credit Counseling maintains a list of member organizations in Michigan that meet specific standards. Since the State of Michigan does not require registration of credit services organizations, it does not maintain a list of approved agencies. However, the Attorney General’s office recommends Michigan residents use one of the agencies approved by the United States Department of Justice.
- Ask about fees for credit counseling services before signing any contract. Under the Michigan Credit Services Act, credit counselors cannot ask for payment up front. Additionally, the agency must provide a written contract and full disclosure. “Any setup fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship,” says the National Foundation for Credit Counseling website. The Michigan Credit Services Act also gives you the right to cancel the contract without penalty within three days.
- Meet with your credit counselor and provide information about your financial situation. The act requires that credit services organizations deliver on the contracted services within 90 days. Your counselor may provide advice or recommend a financial management course. Another option is a debt management plan, which involves the agency negotiating with your lenders. You would then make a monthly payment to the agency, which pays your creditors directly.
- Follow the advice of your credit counselor and work to make lasting changes in your financial situation. Keep documentation of all credit counseling services and paperwork in case you need the information in the future.