Credit Counseling / Debt Management

You may have more options than you realize for regaining control of your finances. Which one, though, is best for you? Describe your case to one of our professionals right away to find out your possibilities.

What’s a Credit Counseling Debt Management Plan?

Debt management plans, commonly referred to as credit counseling, can be a useful tool for lowering interest rates and consolidating monthly payments for unsecured debt. The first step toward financial security is effective money management. Making a debt management strategy that can help you deal with your consumer debt is a vital first step since you must pay off your debt before you can begin saving.

How Does a Debt Management Plan Work?

The term “debt management plan,” or “DMP,” refers to a payment schedule developed and maintained by a consumer credit counseling organization. The agency negotiates reduced monthly payments and perhaps lower interest rates with the debtor’s creditors. In a DMP, you’ll provide the credit counseling organization a single monthly payment, and it will then give the money to your creditors. You are not permitted to take on any new debt during the average three to five-year duration of this plan. Debt management programs can assist you in paying off consumer debt more quickly and affordably than you otherwise could.

What is a credit counselor?

A credit counselor is a specialist with financial literacy and budgeting experience. Credit counselors offer assistance with budgeting, debt management, and raising credit scores. A debt management plan may be developed by a credit counselor in collaboration with clients or creditors. Some credit counseling organizations also provide services including housing and bankruptcy advice. Remember, before using the services of a respectable credit counseling business, do your homework.

Debt Management Plan Pros and Cons

The most obvious advantage of adopting a debt management plan is that it allows you to lower your interest rate while combining several bills into one. Other benefits of debt management plans include:

• Lower monthly payments and possibly reduced interest rates.
• Having a structured plan to pay off debts in a set time frame (typically 3-5 years).
• Making one monthly payment to the credit counseling agency, rather than multiple payments to individual creditors.
• Potential to improve personal finances

It’s important to note that not everyone should sign up for a credit counseling debt management plan, and that you should do your research before doing so. You should make sure the credit counseling organization you choose has a good reputation because there are some dishonest businesses that may demand exorbitant fees or advise clients to pay them directly rather than their creditors. Additionally, not all creditors may consent to participate in a DMP, and it may have detrimental effects on credit scores. Cons of selecting a debt management program also include:

• Unable to combine medical, tax, or student loans
• Takes three to five years to complete
• Primarily for credit card debt
• Unable to use credit cards while in the program
• Missing one payment can derail the entire plan

Despite these disadvantages, working with a debt relief company can help you regain your financial footing in the face of steep credit card debt.

Debt Management 101

Benefits of Debt Management / Credit Counseling A program called credit counseling, which is also known as a debt management plan, is most suitable for people who have a moderate amount of debt and may be having trouble making their entire monthly payments or timely monthly payments on their credit card accounts. Anyone who has suffered a short-term financial event and needs relief from high interest rates in order to get back on track with their credit card payments may find that a credit counseling program is a helpful answer.

How Credit Counseling Works You will engage with a financial advisor to create a budget and monthly payment schedule in a licensed credit counseling program. You will then make a single monthly payment to the credit counseling organization, which will subsequently distribute your payment to your credit card issuers.

Depending on how much you may owe to your creditors, credit counseling agencies will work directly with them to lower your interest rate and create a new monthly payment schedule that will allow you to pay off the whole sum on all of your credit card accounts over a period of 5-7 years. In a credit counseling program, the credit card issuers pay fees to the credit counseling firm, and users often pay a small monthly program management charge of $50 or less for handling the program’s administration.

Pros and Cons of a Credit Counseling Program

PROS

• One monthly payment to the credit counseling company.
• Resolve your debts in 5-7 years.
• Reducing the interest rates on your cards.

CONS

• Your credit card accounts will be closed and you will not be able to make future charges on enrolled accounts.
• You will pay back 100% of your outstanding balances.
• A Credit Counseling Program requires on-time payments each month.
• Failure to make on-time payments may result in interest rates being raised again.
• A Credit Counseling Program typically takes longer to complete than a debt resolution program.

Prioritizing Your Expenses with a Debt Counselor Examine your expenses, evaluate your income flow, and consider ways to better manage your finances. A debt counselor can illuminate a path that better prioritizes your debt. Some considerations:

• Housing — whether paying rent or meeting your mortgage, keeping a roof over your head must be your main priority.
• Transportation — is what gets you to work each day and you need to maintain your transportation to meet your work obligations.
• Utilities/Food/Medical Bills — are the next critical categories that must be paid with an ever shrinking paycheck

Budgeting Assistance “When you don’t plan, you prepare to fail.” That proverb is especially true when it comes to your financial well-being. Making a budget is the first step in planning for your financial future. But for a lot of individuals, that’s easier said than done. They have problems with math and money, and they need assistance to develop a plan. Fortunately, a personal budgeting planner is a tool that may provide this assistance.

A Personal Budgeting Planner To understand the full scope of our debt, it is occasionally necessary to seek outside aid. You can acquire that insight by consulting with a budgeting consultant. They will collaborate with you to fully comprehend your overall financial situation, which will include:

• Assessing your current finances
• Developing realistic spending plan
• Establishing realistic financial goals
• Creating action plan

When creating and adhering to a personal budget, persistence is essential, as it is in all aspects of life. Before allocating your money to paying off your debts, you might evaluate your expenses by taking a close look at your spending. By setting aside money for savings, you can handle any unforeseen costs without going over budget.

Am I Eligible for a Debt Management Plan? Debtors considering a debt management plan must also demonstrate eligibility in the same way as bankruptcy petitioners must do so in order to file for protection.

Once you’ve made the decision to take control of your debt, you should sit down and assess whether you qualify to take part. To find out if you can pay off your debts, we will specifically look at your whole debt and income picture. In order to accomplish that, a credit counselor will examine:

• Your total outstanding debt
• Your income flow
• Ability of your income to meet the plan’s obligation

If you are sincere in your desire to pay down your debt, and you have a steady income that will allow you to meet the plan’s obligations, then you should be eligible to participate in a DMP.

Do Debt Management Plans Affect Credit? When you enroll, you pay a monthly fee to your credit counseling organization, which will subsequently distribute the money to your creditors. However, a lot of people are concerned that signing up for a Debt Management Plan (DMP) could negatively affect their credit score.

Will a DMP hurt my credit? If this is your concern, you should first understand that continuing credit collection operations are already having a negative impact on your credit. The typical duration of a debt management plan is three to four years. Your credit record will reflect any obligation that is being paid off while you are in the program. Although it is impossible to predict exactly how a DMP may affect your credit score, you should be aware of the following:

• 35% of your score is based on payment history
• 30% of your score is based on amounts owed
• 15% of your score is based on length of credit history
• 10% of your score is based on new credit inquiries
• 10% of your score is based on unique individual factors