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An Open Letter To Dave Ramsey: Why Debt Management Works
Sorry, Dave Ramsey, But You’re Wrong When It Comes to Debt Management
There are a lot of misconceptions around the legitimacy of professional debt management programs these days. Take Dave Ramsey’s Truth About Debt Management article as an example. In his article, which we’ll dive into below, he talks about the risks involved in a debt management program (DMP) and how they do nothing but damage your credit. This is obviously a heated issue, as there are literally hundreds of comments on the page. Unfortunately for Dave, a large majority of the comments are from people who ACTUALLY went through a DMP and know FIRST-HAND just how helpful they can be.
Take a look at some of Dave’s claims and see just how factual they are:
[With a Debt Management Program] You may get out of debt … but only with your credit trashed.
Dave Ramsey says DMPs help you get out of debt, but leave your credit trashed—and we wholeheartedly disagree. It doesn’t matter how you pay off your debt—whether individually or with professional help—however you do it, less debt means better credit. That’s why people who enroll in a debt management program actually come out with higher credit scores.
DMPs are extremely beneficial because they’re able to help the consumer get out of debt faster and easier. For more proof, take a look at the comments section below Dave’s article. The very first comment is from a woman named Jacquie who says through a DMP she was successfully able to refinance her mortgage loan with ease. Even better, her credit score went from 585 to 675, and then eventually up to 720! It was reflected on her credit report, and she qualified with no problems for refinance of her existing mortgage.
Good debt management is 80% behavior and 20% head knowledge. It isn’t rocket science as some debt management companies try to make you believe.
Dave is correct when he says that getting out of debt is 80% behavior and 20% head knowledge. The key to getting out of debt is more about learning good habits than anything else. That’s why the best debt management companies also offer non-profit consumer credit counseling to help their clients build a budget and learn to live within their financial means. That way it’s not just about getting out of debt, but staying out. And that’s where the financial expertise and advice of a trusted credit counselor can make a huge difference.
In addition to learning better financial habits, there’s another HUGE advantage debt management companies have over individuals who are trying to pay off their debt on their own. Ironically, this is something Dave never acknowledges (but the readers do). The reason people are able to get out of debt faster with a DMP is because debt management companies are able to lower your rates by negotiating on your behalf. Creditors want reassurance that their outstanding balances will be paid off, which is why it’s so difficult for an individual to lower their rates on their own. So with that in mind, we have relationships with ALL the credit card companies. We can get all of them to make concessions, lower interest rates and lower payment amounts.
Companies like Consumer Credit Counseling Service can help you get better interest rates and lower payments, but at a price. When you use one of these companies and then try to get a Conventional, FHA, or VA loan, you will be treated the same as if you had filed Chapter 13 bankruptcy. Mortgage underwriting guidelines for traditional mortgages will consider your credit trashed, so don’t do it. Real debt help is found only in changing your behavior.
This has been one of the biggest misconceptions about DMPs for many, many years. Frankly, it’s not true. Dave may be confusing debt management (which we advocate) with debt settlement (which we don’t). Bankruptcy is a dangerous option, and it’s one we never condone. In a Chapter 13 bankruptcy, you may be forced to pay your creditors off within 60 months at a lower rate and a lower payment. But, another common bankruptcy option is a 60/60 plan. Here you pay 60% of the debt off over 60 months with reduced payments and reduced rates.
So, much like a Chapter 13, debt settlement usually involves the banks giving the concession by settling for less debt than they’re owed. And, of course, that will show on your credit report as “settled for less than the total amount owed” like with a debt settlement—which is not good for your credit.
For Dave to compare a DMP with bankruptcy is not only ungrounded, it’s completely inaccurate. A DMP doesn’t ruin your credit; it takes someone who has already destroyed their credit and helps them improve it. (Again, check the comments for more examples.) Under a DMP, you’ll be paying your monthly payments in full and on time, which will naturally improve your credit. And once you become debt-free, your credit will be at a good standing because you’ll have spent the last x number of years making perfect, timely payments.
In short, debt management companies are out. Hard work is in. Change your financial behavior and change your life—for good.
We do agree with Dave on one thing: Getting out of debt IS hard work, which is why it usually takes between 20 to 30 years for the average person to climb their way out. On the other hand, with a DMP, people are able to become debt-free within three to five years, much less time than if they were to pay it off without reduced interest and other benefits of a professional debt management company.
And because a DMP helps them prioritize and budget, people who go through the process will have received the financial education they need, have made regular monthly payments and when it’s all over will know how to live within their means.
Contrary to what Dave says, a DMP helps the consumer pay off their debt quicker and easier, and though getting out of debt is never easy, we make the really hard work a little—or a lot—less painful.
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