A debt management program consolidates your debt without you having to take out a loan. In other words, you don’t need a loan to pay off a loan. It is administered by a nonprofit credit counseling agency like InCharge Debt Solutions, which offers financial education alongside the program so that consumers learn from the experience and aren’t likely to repeat it again.
Some companies offering debt settlement programs may not deliver on their promises, like their “guarantees” to settle all your credit card debts for 30 to 60 percent of the amount you owe. Other companies may try to collect their fees from you before they settle any of your debts. The FTC’s Telemarketing Sales Rule prohibits companies that sell debt settlement and other debt relief services on the phone from charging a fee before they settle or reduce your debt. Some companies may not explain the risks associated with their programs, including that many (or most) of their clients drop out without settling their debts, that their clients’ credit reports may suffer, or that debt collectors may continue to call them.
2. Debt consolidation: When you pay high-interest on a credit card or a personal loan, the debt mounts and it becomes difficult to pay it off. The easiest way to knock-off debt is to take advantage of a debt consolidation program where you make a single monthly payment to your creditors. You can easily avoid paying high-interest, penalties, and fines.
Budgeting apps, software and services can help you find financial enlightenment and empowers you to maintain your progress. You don’t need a fortune in the bank to create a budget that works and constantly improve it. Start by entering your income and recurring expenses. Overestimate important costs such as utilities, transportation and food to allow yourself a little buffer. Use your budgeting tool to help you spot areas where you can cut back. Whatever money is left over after paying your monthly expenses should go directly toward outstanding debts.
Depending on your income and the cost of living in your city, this can be difficult unless you keep an eye on it. If you know you need to make a shift in your spending habits, try using cash. Take out your weekly allowance in cash each week and only let yourself spend that amount until it runs out. If your allowance week goes from Saturday to Friday, and you run out on Wednesday, then get creative for Thursday and Friday.
The debt management program itself is not reported to credit bureaus and does not factor into credit scores. The largest % of anyone’s credit score is payment history and with a debt management program, our goal is to make on time payments to liquidate your debt in a reasonable amount of time. Initially, your score may dip when lines of credit are closed, however, people on a debt management program typically see their scores increase over time as they make on-time payments each month.
Of course, $800 a month in credit-card bills is a lot to handle, which is where debt management comes in. One of the companies I profile further down, InCharge, can help reduce interest rates by an average of 6% to 9%. Assuming the best scenario (a 9% interest rate drop) and a four-year plan, your monthly payment could shrink to $576 (this includes a monthly fee of $49, which could be lower or dropped completely, depending on your situation) and your total interest paid would shrink to $5,276.
Checking your credit report for inaccuracies is an important step in your journey to reduce your debt. Remedy: You are allowed a free credit report from each of the major credit reporting bureaus, Equifax, Experian and TransUnion. Split them up, one every four months. Check them closely for incorrect delinquencies and/or balances that hurt your credit score and could make a difference in your ability to buy a house or car, or obtain more credit.
No Results, No Fees ... ** Results are based on accepted settlement offers where the creditors have received payment on each account, fees are based on each of the clients enrolled account separately. Estimates based on prior results; individual results will vary based on circumstances, including your ability to save sufficient funds and complete the program. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Please contact a tax professional to discuss tax consequences of settlement. Read and understand all program materials prior to enrollment, including potential adverse impact on credit rating. Consumer Debt Help Association is not a law firm and does not provide legal advice. Not available in all states, state restrictions may apply.
The debt management plan consolidates your debt into a single payment. Each payday, you automatically deposit money into your GreenPath account, and we use that money to pay on your behalf. We may be able to arrange lower interest rates and monthly payments with your creditors, so you can pay off debt faster and save money. Once creditors agree to the program, collection calls stop and you see your balances start to go down.
Using this service brought me a ton of mental and emotional relief, in addition to financial relief. The stress of this debt has been weighing heavily on me, and the representatives I spoke to were easy to talk to and explained everything clearly and in as much detail as I needed. They were also very patient and genuinely felt like they were in my corner.
Participating in a credit counseling session will not be reflected on your credit report and it will not impact your credit score. However, changes in your financial behavior, especially after choosing a debt solution, may have a positive or negative impact on your score. For example, joining a debt management program and having your credit cards closed may initially lower your score. But making on-time payments you can afford over time, could raise your score. A study published by the National Foundation for Credit Counseling found that participants saw a 50 point average increase in their credit scores, 18 months after finishing the service. This gain applied to those in the bottom quartile of credit score.
If you struggle with learning how to develop a good budget so you can get your debts paid on time each month, you may consider using a credit counselor to get back on track. Consumer credit counseling agencies are nonprofits that will help you find a workable solution to financial problems. However, some nonprofit credit agencies charge excessive fees that are not applied to debt reduction.
Both are possible solutions to problems with debt. A debt management program is not a loan. It consolidates unsecured debts and tries to lower monthly payments through reductions on interest rates and penalty fees. A debt consolidation loan is actually a loan, with interest charges and monthly payments due. With a debt consolidation loan, you would have to qualify to borrow the amount needed to pay off your debt. The interest rate is normally fixed and, depending on your credit score and history, may need to be secured with collateral like a home or car. Debt consolidation loans usually run 3-5 years.