Letter to the Editor: Debt firm differences
The Dallas Morning News (circ. 404,951)
29 May 2011

Re: "Chasing airline miles probably not worth it" by Dave Ramsey, May 15 Business section

I'm writing to make sure readers know that there is a big difference between a debt management company and a debt settlement company. Unfortunately, Dave Ramsey confused the two when he answered a reader's question.

The reader asked about debt management companies, and Ramsey's answer described debt settlement companies. A debt settlement company seeks to reduce the principal amount owed on a debt. These are for-profit companies, many of which run TV and radio commercials promising to "reduce your debt." State attorneys general sued debt settlement companies for charging hundreds or thousands of dollars in fees regardless of whether any debt was actually settled.

In 2010, the Federal Trade Commission amended the Telemarketing Sales Rule to curb deceptive and abusive practices associated with debt settlement. Key provisions require debt settlement companies to disclose specific information before signing people up, prohibit these companies from misrepresenting their services and prohibit them from charging a fee before they settle or reduce a customer's debt.

Conversely, most debt management companies are nonprofit organizations. They provide free or low-cost counseling and education focused on helping consumers manage their money and lower their debt. This may include a debt management program that could eliminate collection calls and significantly reduce credit card interest and fees.

Costs for a debt management program are typically $25 to $50 per month, which is usually far less than the amount saved in interest and fees. Many debt management companies offer services face-to-face and by phone, and have been in their communities for 40 to 50 years.

Emily Reed
GreenPath Debt Solutions
McKinney