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How Debt Consolidation Programs Can Get Your Finances on Track — LendingTree

  • February 20, 2020
  • By: Greenpath Financial Wellness

Excerpts from a LendingTree article that explains different types of debt consolidation programs, including debt management plans.

Debt management plans (DMPs), a popular type of debt consolidation program, can help you get on track to pay off your unsecured debts. Often, a nonprofit credit counseling organization will set up and run the debt management plan, and act as an intermediary between you and your creditors.

Unlike a debt consolidation loan or balance transfer credit card, you don’t have to open a new account or have good credit to qualify for a DMP. However, you can still save money, lower your monthly payment and get on a path toward paying off your debts.

Debt management plans help you manage debt

Credit counseling organizations manage this type of debt consolidation program, and the initial step is reaching out and discussing your financial situation with a counselor. If a counselor decides a DMP could be a good option, and you sign up, you’ll make a single monthly payment to the credit counseling organization, which will distribute the funds to your creditors.

The benefits of using a debt management plan can include:

  • A single, potentially lower, monthly payment
  • Lower interest rates on the included accounts
  • Bring past-due accounts current
  • Stop collection calls about the accounts
  • Waive late and over-limit fees

Generally, if you follow through with the DMP, you can expect to pay off all the debts within three to five years.

Step-by-step: How a debt management plan works

  1. Meet with a credit counselor: The first step is to meet with a credit counselor, which you may be able to do in person, over the phone or online. Be prepared to discuss your personal finances and answer the counselor’s questions. By the end, the counselor may present you with different options based on your circumstances. These could include a DMP, but a DMP also might not be the best option in your case.
  2. Wait for the counselor to get back to you: If you decide to sign up for a DMP, your credit counselor will first need to reach out to your current creditors. They will try to negotiate on your behalf to lower your monthly payments, decrease accounts’ interest rates and get your past-due fees waived if you’re behind on payments. The counselor will then get back in touch with you to discuss the results and what your DMP will look like.
  3. Sign up for the debt management plan: If you agree to the plan, you may need to pay a one-time setup fee and agree to a monthly fee. Your new monthly payment (including the fee) could be electronically sent to the counseling agency each month. They will then send the appropriate payments to each of your creditors.
  4. Close or stop using certain credit accounts: You may need to close all the credit cards that are included in your DMP, and agree to stop using other credit cards. Your creditors may also monitor your credit report to see if you open new accounts or use other cards, and cancel your DMP benefits if they notice you’re not sticking with the agreement.
  5. Make your monthly payment: Continue making your monthly payment until you’ve paid off all the accounts. Missing a payment could lead to your interest rates and monthly payments rising again, and late payments getting reported to the credit bureaus. If you think you won’t be able to afford a payment, contact your credit counselor immediately to see if they can help.

How to find and choose a debt management plan

There are no government debt consolidation programs for credit card debt. But you can still find trustworthy agencies. Start your search for a DMP by looking for organizations that are part of either the National Foundation for Credit Counseling or Financial Counseling Association of America. These two associations certify credit counselors, and the member agencies and organizations must be nonprofits to maintain their association.

If you’d prefer to meet with a counselor in person, there may only be a few options depending on where you live. However, many credit counseling organizations also offer online or phone appointments.

An initial consultation or call may be free, so take the opportunity to interview the counselor and make sure it’s someone who you want to work with. You can also search for reviews of the credit counseling organizations. For example, we reviewed Greenpath Financial Wellness and their offerings. But you might also seek out consumer reviews.

Click here to the full article about debt consolidation programs on LendingTree.

 

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