A debt management program is one of the essential tools utilized by credit counseling organizations. It provides for a structured repayment of debt at favorable terms. You might pay a fraction of your normal interest payments, if you qualify.
Benefits available through a debt management program include:
- Lower interest rates–Creditors may raise your rates to default rates when you show signs of financial distress. However, they can lower them substantially, often in the single digits if they believe you need help to pay off debt and avoid a future default.
- Reduced minimum payments–Consider that most of your minimum payment is interest. If your finance charges are reduced, then that allows for a lower payment.
- Faster payoff period–Even though most debt management program participants benefit from a lower monthly payment, their repayment period is normally within three to five years. That’s because a much larger percentage of each payment goes towards principal.
- Re-aging of delinquent accounts–Credit card accounts that are three months delinquent may require nearly four times the normal monthly payment to restore to current status. Creditors can restore current status without catching up on late payments if your account is accepted in the program.
- Waiver of late and over-the-limit fees–Many major credit card and loan companies will waive nuisance fees when you begin making payments through a debt management program. At $25 to $45 a pop, these can really add up otherwise.
- Reduction in collection calls–Collection calls from creditors can be inconvenient and embarrassing. Getting back on track with the program can free up your telephone for more important calls.
Debt management programs can also provide additional benefits. For starters, since thirty-five percent of your credit score is dependent on payment status, your on-time payment history can provide a boost to your credit scores. An additional thirty percent of credit scoring depends on your balances. Therefore, you should expect your scores to rise as your balances shrink.
Debt management programs are administered by credit counseling agencies. A reputable agency will properly qualify you for the program prior to enrollment. These are signs that you might be eligible for benefits, meaning that you show signs of financial distress:
- Living paycheck-to-paycheck–You find yourself making payments over the phone on the due date.
- Little or no savings–You are reluctant to give up credit cards because you cannot pay for an emergency with cash.
- Making minimum payments–You pay less than $50 above your minimum payments each month.
- Late payments–You have been late within the past twelve months on at least one of your accounts.
- Long-term balances–You are still paying on debt incurred more than three years ago.
You will need to complete credit counseling before you may enroll in a debt management program. An Accredited Financial Counselor will help you develop a budget, gain a list of your debts and evaluate your overall financial health. They provide you with documentation of your financial situation as well as an action plan. That action plan may include a debt management program if it is deemed to be one of your better options.
To begin the process, gather your latest credit card statements and contact a counselor. Counseling sessions are private and confidential, and there is nothing to be ashamed of. If you prefer the privacy of the internet, then online counseling options are also available.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."