Dave Ramsey-Check your facts!

Many of us here at FISC are Financial Information nerds-we just can't get enough. So we listen to many "experts" in the field such as David Bach, Suze Orman and Dave Ramsey. And we love them! But recently an article by Dave Ramsey was brought to our attention and had us giving him second thoughts. His article, "Do Debt Management companies Work?" was filled with errors and gross generalizations.

This especially disturbs us because it can stop people from coming to FISC to get help. Helping people is what drives us. FISC was started in the 1980's by a man, Dennis Jansen, who was on the verge of suicide because of his struggles with money. He went to his friend John Robinson for help. John helped Dennis learn how to budget and pay off his debt in a non judgmental way. The two of them began sharing their experience with others, usually at churches and found that many many people wanted help with their finances. They took a leap of faith, quit their jobs and launched a ministry to help people who were stressed and beat up by money.

We still teach the basics of what they taught, and use the same tools they used to help people get in control of their finances. The core concept is that we all must spend less than what we earn. When someone comes to see us, that is where we begin. How much do you earn? How much do you spend? How can you spend less than what you earn? If a person would have a large amount of credit card debt, and other types of debt, we can offer debt management plans.

A debt management plan usually allows you to lower interest, may lower payments and pay off the debt in 5 years or less.

Here is what Dave Ramsey said: "Debt management companies are a bad idea. Some of these outfits act like it's rocket science to try and get out of debt....Continue to reinforce to your clients that real debt help is found only in behavior change. That's why these companies don't work--they simply don't treat the source of the problem. True debt management is about one thing--controlling your money." Let me answer him. We agree! Our theme is "Changing the way you think about money." We work extensively to teach and challenge our clients to do just that. Now there may be what we call, "Debt Mills" out there who just want to figure out what your payment is on a debt plan, sign you up, and leave you without any further knowledge of how to manage money. But that is not us.

We have helped many people pay off debt, who if were not for the debt management plan would have had to file bankruptcy. Dave Ramsey goes on to say that being on a debt management plan will trash your credit. His words: "When someone uses one of these companies and then tries to get a conventional, FHA or VA loan, they will be treated as if they filed Chapter 13 bankruptcy. Not only that, but mortgage underwriting guidelines for traditional mortgages will consider their credit trashed." This is completely false. So, how does being on a debt management plan affect your credit score and ability to get a mortgage?

Being on a debt management plan is not factored into your credit score at all, so in and of itself will not lower your credit score. Over time, with paying off your debt on time every month on the debt management plan will improve your score. Now there can be a problem if a creditor says you have a past due amount and continues to report you past due. Your solution to that is to catch up on whatever that past due amount is. As far as mortgages, the lender will want you to be on a Debt plan for at least 12 months before getting a mortgage. After that you are considered as any other person, with the emphasis on the score. After a year on a debt plan you will have decreased your debt, so your score at that point should have improved unless you have late payments or past due amounts. That is the same on or off a debt plan.

A debt plan is not a bankruptcy, cannot be rated as a bankruptcy on the credit report and only those who are not knowledgable would consider it as a bankruptcy. And they would be wrong. From what I've seen, the ones who describe it that way are trying to sell you a product, either a refinance or a bankruptcy.

A Debt management plan is not for everybody. But financial counseling is for everybody, no matter who you are, it never hurts to get another perspective on your finances.