Financial Counseling and Debt Management Plans: Helping your members see a brighter financial future

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1 Financial Counseling and Debt Management Plans: Helping your members see a brighter financial future Presented by: Luke Pelger GreenPath Debt Solutions

2 Goals Learn about different ways to provide financial counseling Discuss what a Debt Management Plan is and how it can help members Examine the difference between debt management and debt settlement Explore the overall benefit to credit unions by providing financial counseling

Examine the difference between debt management and debt settlement

3 Financial Counseling

4 The Need for Financial Counseling 33% of adults admitted to not paying their bills on time 40% reported that they have no savings 25% are spending more now than they were last year 80% say they could benefit from advice from a professional *Source: 2012 NFCC Consumer Financial Literacy Survey

spending more now than they were last year 80% say they could benefit

5 Financial Counseling Models In-house counseling - full-time employee counsels members External referral - credit union staff refers to an independent counseling organization External partnership - partner with independent counseling organization underwritten by the credit union Hybrid - a combination of the above models

counseling organization External partnership - partner with independent

6 Financial Counseling Process Discuss financial needs and goals of the member Develop a comprehensive budget and action plan Review appropriate options *Counseling topics can include budgeting, credit reports and scores, managing debt, and housing

plan Review appropriate options *Counseling topics can

7 Sample Budget Budget Summary: Income: $4,800 Housing, Utilities, and Fixed Payments: $2,830 Home Budget Expenses: $930 Unsecured Payments: $ Surplus/Deficit: $265

8 Manage on their own Review Options Consolidation loan Home equity Debt Management Plan

9 Benefits of Financial Counseling For the member: Learn how to set goals and create a budget Gain awareness of his or her financial matters Learn how to make wise spending choices Provide the member options for reducing debt, increasing savings, and improving credit score

matters Learn how to make wise spending choices Provide the member

10 Benefits of Financial Counseling For the credit union: Reduces loan losses Provides the staff with a resource for member education Offers alternative in loan decline process Offers resources to collection department Builds long-term loyalty

member education Offers alternative in loan decline process

11 Debt Management Plans

12 Debt Management Plan vs. Debt Settlement (How They Work) Debt Management Plan Enter into an agreement with a credit counseling company to pay creditors Debt Settlement Enter into an arrangement for the settlement company to negotiate settlements Individuals are required to close all unsecured accounts (some exceptions may apply) Agree to stop making payments to creditors and refer all debt collection to the settlement company

company to pay creditors Debt Settlement Enter into an arrangement for the settlement company to negotiate

13 Debt Management Plan vs. Debt Settlement (How They Work) Debt Management Plan Make deposits to DMP with each paycheck or on a systematic basis Credit counseling company disburses payments to creditors each month and negotiates concessions or payment arrangements Debt Settlement Send funds monthly to be held in an account set-up by the settlement company When enough money has been accumulated, the settlement company will try to negotiate a settlement

basis Credit counseling company disburses payments to creditors each month and negotiates concessions or payment

14 Debt Management Plan Concessions Creditor concessions may: Lower interest rates Lower payments Stop late and over-the-limit fees Re-age accounts that are past due Stop collection activity

15 Debt Management Plan vs. Debt Settlement (The Impact) Debt Management Plan Closing of unsecured accounts can impact the credit score Creditors can put a notation on the credit report that the account is being paid through a DMP Debt Settlement Lack of payments to creditors severely impacts the credit report and score negatively A notation of settlement will remain on the credit report for 7 years

credit score Creditors can put a notation on the credit report that the account is being paid

16 Debt Management Plan vs. Debt Settlement (The Impact) Debt Management Plan Credit report notation is removed once the account is paid in full through the plan Debt Settlement Possible tax implications for settling the debt

17 Debt Management Plan vs. Debt Settlement (Cost) Debt Management Plan Monthly management fees are typically charged Debt Settlement Can cost hundreds or even thousands of dollars

18 A DMP Story - Jenny Situation: Jenny contacted a credit counseling agency in late 2010 because she experienced a loss of income due to furlough days and unexpected expenses as a result of 2 deaths in her family. These circumstances caused Jenny to fall behind on payments to multiple credit cards. Goal: Pay off debt and purchase a home. Education: The counselor focused on building a budget for Jenny and implementing a system for tracking expenses along with creating a plan to save for unexpected expenses and emergencies. Outcome: Jenny is participating in a DMP, making progress on paying down over $20,000 in debt, and should be debt-free in approximately three and a half years.

19 Jenny s Concessions Creditor Creditor A Interest Rate before DMP Current Interest Rate Payment before DMP Current Payment 22.9% 6% $60 $38 Creditor B 21.74% 10% $15 $15 Creditor C 28.99% 5.9% $110 $76 Creditor D 24% 16% $76 $79 Creditor E 24.99% 10% $40 $33

9% 6% $60 $38 Creditor B 21.74% 10% $15 $15 Creditor C 28.99% 5.

20 Jenny s Concessions Creditor Interest Rate before DMP Current Interest Rate Payment before DMP Current Payment Creditor A 22.9% 6% $60 $38 Creditor B 21.74% 10% $15 $15 Creditor C 28.99% 5.9% $110 $76 Creditor D 24% 16% $76 $79 Creditor E 24.99% 10% $40 $33

21 Jenny s Concessions Creditor Interest Rate before DMP Current Interest Rate Payment before DMP Current Payment Creditor A 22.9% 6% $60 $38 Creditor B 21.74% 10% $15 $15 Creditor C 28.99% 5.9% $110 $76 Creditor D 24% 16% $76 $79 Creditor E 24.99% 10% $40 $33

22 Jenny s Concessions Creditor Interest Rate before DMP Current Interest Rate Payment before DMP Current Payment Creditor A 22.9% 6% $60 $38 Creditor B 21.74% 10% $15 $15 Creditor C 28.99% 5.9% $110 $76 Creditor D 24% 16% $76 $79 Creditor E 24.99% 10% $40 $33

23 Jenny s Concessions Creditor Interest Rate before DMP Current Interest Rate Payment before DMP Current Payment Creditor A 22.9% 6% $60 $38 Creditor B 21.74% 10% $15 $15 Creditor C 28.99% 5.9% $110 $76 Creditor D 24% 16% $76 $79 Creditor E 24.99% 10% $40 $33

24 Jenny s Benefit Summary Before Debt Management Plan On Debt Management Plan Benefits Total Monthly Payments $866 $599 $207 Principle Payment $75 $370 $295

25 Jenny s Benefit Summary Before Debt Management Plan On Debt Management Plan Benefits Total Monthly Payments $866 $599 $207 Principle Payment $75 $370 $295

26 Jenny s Benefit Summary Before Debt Management Plan On Debt Management Plan Benefits Total Monthly Payments $866 $599 $207 Principle Payment $75 $370 $295 With Debt Management Plan concessions, Jenny will payoff her unsecured debts 24 months sooner and save over $15,000 in payments and interest.

27 Benefits of a DMP for Members Reasonably priced option that can help members continue paying their debts while getting help from creditors Long-term solution that will help members pay their debts in full which is better for the credit history than debt settlement The credit counseling company can educate the member along the way to become more financially healthy through counseling and education resources

28 Benefits of a DMP for Credit Unions Members may include credit union debt on a DMP, which may reduce losses for the credit union and capture dollars that are difficult to collect Members will pay their unsecured debt in full which makes them good candidates for more credit union products and services

29 Summary and Considerations Financial counseling and Debt Management Plans can be extremely valuable for helping and educating members Determine what resources you already have for financial counseling or providing a Debt Management Plan when appropriate Determine what resources you need or want

30 Summary and Considerations Considerations for in-house counseling: What are the costs for staff to be trained as counselors? Will it be a dedicated role or split role? Considerations for external referral or partnership? What is the credibility of the agency? What is the cost to the credit union? What is the cost to members? Are educational tools and resources available in addition to counseling and/or Debt Management Plans?

31 Summary A need exists for financial counseling and education You can help meet that need and help your members see a brighter financial future Continue living out People Helping People

32 Questions?

33 Luke Pelger GreenPath Debt Solutions

FTC Facts. For Consumers Federal Trade Commission. Living paycheck to paycheck? Worried about debt. Fiscal Fitness: Choosing a Credit Counselor

FTC Facts. For Consumers Federal Trade Commission. Living paycheck to paycheck? Worried about debt. Fiscal Fitness: Choosing a Credit Counselor FTC Facts For Consumers Federal Trade Commission For The Consumer December 2005 Fiscal Fitness: Choosing a Credit Counselor Living paycheck to paycheck? Worried about debt collectors? Can t seem to develop