DFA questions Frequently ask questions about debt, credit and personal money management

What is a Debt Management Program (DMP)?

A program designed to help manage your debt by determining an affordable monthly payment (usually about 3% of the principal debt balance) and disbursing these payments in a timely manner to become debt free in shorter amount of time.

How does a DMP work?

1. You will send one monthly payment to Debt-Free America (DFA) who will re-distribute your payment among your creditors.
2. In return, you will receive concessions (benefits) from creditors such as a reduction on your interest rate and the elimination of over-the-limit and late fees.

What are the fees associated in a DMP?

The initial credit counseling session and all of our financial literacy education services are FREE. If you are enrolled in our Debt Management Program, you may pay a nominal set-up fee and/or a monthly service fee. Fees are determined by the State you reside in and are reviewed by DFA to ensure the fees are reasonable as required by federal law.

Does this hurt my credit?

What's your credit look like now? When is the last time you actually checked your score? You may check your credit report free of charge once a year from each one of the credit bureaus at www.annualcreditreport.com. There will however be a small charge for your actual credit score, depending on which state you live in.

What happens to my accounts once enrolled in the program?

Upon enrollment in the debt management program your accounts are automatically closed by your creditor. In addition, it is not advised to obtain new credit while on the program because some creditors will pull your credit report randomly and check for new credit activity, even applying for new credit counts. If you have new credit activity your creditor may choose to drop you from the program for up to one year. During that year your account would revert to its original terms.

What if I only want to include some of my accounts in the program?

The purpose of debt management is to assist clients who are experiencing financial hardship and with the help of our program some of their financial burden is relieved through a lower monthly payment. Debt management programs are designed to be a debt reduction program where clients are adjusting to living without having to rely on credit. If you are picking and choosing which cards you would like to include that financial hardship may not be present. Further, some creditors will require you to enroll all of your credit card accounts with the exception of one. The creditor also would like to see that you are in a position where you need their help and not of one where you only shopping around for a lower interest rate.

How are collection or hospital bills handled in the program?

Unlike your creditor accounts, collection accounts and hospital bills will not receive the same benefits. For starters, collection agencies do not necessarily like to receive reduced payments and if there is an interest rate it is up to their discretion how that will accrue on your account. Hospital bills do not generally have an interest rate and therefore they will just receive a reduced monthly payment from us. So what's the upside of enrolling these accounts? If these accounts have not been paid in some time, at least you can begin making some payments to these companies every month. Also, by including these accounts in your debt pooling you are making it easier for yourself by having one low monthly payment that is being disbursed to all of your creditors.

Why can't we arrange our own DMP directly with the creditors?

Generally, if your accounts are past due and you call the creditor they may be able to set up some type of internal debt-pooling program with you. However, there is no guarantee and sometimes the arrangement may only be temporary, say just for six months or one year. By working with our debt management program you can take advantage of the creditors’ concessions from the day you enroll until you have completed the program, as long as you make consistent and timely payments.

The creditors actually established debt management programs back in the 1970's when they were experiencing an increase in bankruptcies and saw a lack of financial education among the consumers. By working with non-profit debt management and credit counseling agencies the creditors agreed to provide the consumers with concessions, such as lower payments and reduced interest rates. In return, the debt management agency is to help the client develop a budget and educate them on and educate on managing their finances in the future. By offering the consumer these concessions the creditor will receive more money than if the account had to be sent to collections, and much more money if the consumer filed bankruptcy. Agencies, like ours, help this whole transaction take place which is a win-win situation for all involved.

What are the chances a DMP proposal could be denied?

If you are denied, it’s usually because the creditor is requesting an additional $5.00 to $15.00 in your monthly payment to grant the concession. We have processes in place to handle this, so you’ll be notified immediately by us, than together we can determine what you can do to get the proposal accepted, such as sending in the additional dollar amount requested.

What is debt settlement?

Debt settlement is a program where you make one monthly payment to a debt settlement agency, just like with us, except that they keep the payment rather than sending it out. They hold on to the money until they have a big lump sum, and then they call your creditors and offer to settle your debts for something like 80 cents on the dollar – so you don’t have to pay the whole balance. However, this can be harmful because you have a year or more with no payments being made, which is being reported to the credit bureaus. And the money you don’t pay, the difference in the balance you owe and what you pay, is considered income, and therefore you have to pay taxes on it.

Can student loans and personal loans be included in the program?

Student loans are not allowed in our program because we are unable to offer any better concessions than the lender is already offering. Often times, an educational loan lenders offer the consumer an interest rate reduction if an automatic debit payment is set-up or after certain number of payments are made. Therefore, it is your best interest to handle your accounts with your original lender.

As far as personal loans go, the payment amount and interest rates are set at a predetermined amount by your lender and are not negotiable. In addition, often times the due date can not be changed which makes it difficult for enrollment into a program. The due date must be considered when deciding on your payment cycle.

What about debt consolidation?

Generally refers to taking out a loan, and the lender pays all of your credit cards off. Now you owe money to this lender. You would do this because your new loan is at a lower interest rate than the credit cards. Check into your local credit union/bank

I thought you were non-profit; how can you charge me a fee?

A lot of people get thrown off by the term “non-profit.” Simply, the difference between a “for-profit” and “non-profit” is where the money goes. If we were a for-profit company, the fee you pay each month would go to shareholders, or the people running the company, or to their salaries. As a non-profit, or 501(c)(3) community service organization, the fee you pay goes right back into the company and our operating expenses, or back to the community we serve – which is you.