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People tend to not contact a debt consolidation agency, until they have tried various other different ways to manage their debt. This can include everything from applying for a debt consolidation loan to trying to negotiate with creditors to cut their debt and interest rates.
New help from the familiar source
If you have tried some of these solutions with no success, there is help available from a goos source–your local credit counseling service. You can meet with a counselor at one of these agencies who will help you create a workable budget and explore different ways for getting out of debt. The counseling agency may also be able to offer you a debt management plan.
What is a debt management plan?
If the credit-counseling agency can help you develop a debt management plan, this can be a good way for you to pay off unsecured debts such as medical bills, credit cards and collection accounts. With a debt management plan (DMP) your creditors may be willing to:
- Reduce the minimum payments on your account or allow you to pay off your debt monthly rather than all at once
- Reduce the interest rates on your accounts
- Waive late fees
- Re-age your account, which means that the creditor is willing to show your account as being “current” though you have not paid off the entire amount owed.
How a DMP works
In order to qualify for a DMP, you must first go through credit counseling. The counselor will sit down with you to review your household income, expenses and assets and explore with you other ways you might repay your debt. If he or she concludes that a debt management plan would be your best solution, the credit counseling service will develop and then send your creditors a proposal for repaying your debt. This proposal will include verification that you are, in fact, working with a credit counseling agency, what you propose to pay monthly and proof that your income will be able to handle the requisite payments.
What you'll need to do
When your creditors accept the proposal from the credit-counseling agency, there are three things you will need to do to stay in compliance with the program.
- Make your monthly payments on time
- Review all the statements from your creditors
- Avoid acquiring any new debt
Why your creditors may be responsive
The question that many people ask is why would creditors be willing to provide this kind of help through a debt management plan but not if you ask for it directly. The answer to this can be found in the relationship between credit counseling agencies and the credit providers. Credit counseling services have good working relationships with creditors such as the charge card companies. In fact, some of these agencies are actually underwritten by credit providers who understand it is far better to cooperate with a credit-counseling agency on a repayment program than to see you file for bankruptcy.
What to look for any consumer credit counseling agency
If a debt management plan seems like a good solution to your financial problems, be sure to choose a trustworthy credit-counseling agency. Here's what you should look for before choosing one.
- Accreditation through the National Foundation for Credit Counseling or the Association for Independent Consumer Credit Counseling agency
- That is a nonprofit agency–if possible
- It has a good rating with the Better Business Bureau
A debt management plan can be a very good way to get your debt under control. Just don’t make the mistake of thinking that you can now go out and charge up a lot of new purchases or you could end up in even more trouble than before.