There was a time during my mommy career when I worked a part-time job at a debt management agency in hopes that it would turn into full-time employment. There I was, a working mom, going to work just for the experience (since I was only paid enough to cover daycare). I loved the position I held, but I ultimately left because…well, we needed more money!
However, my time there was not for nothing, and my husband and I eventually learned enough about debt management plans that we decided it was the best way for us to pay off our credit card debt.
Are you wondering the same thing? Should you enter into a debt management plan?
Here are 3 things that you must know about debt management plans before you sign up for one:
For-profit or not-for-profit? If you’ve seen a commercial before about debt consolidation, it was probably from a company that is for-profit. I worked for a non-profit credit counseling agency that received grants and funding from various organizations that were interested in making our services available to our community. We charged a minimal fee for our services and our counselors were truly committed to helping people. If you’re seeking help from an organization to pay off your creditors, selecting a non-profit will ensure that your money goals are the priority, not theirs. I suggest you start your search by visiting the National Foundation for Credit Counseling website, NFCC.org.
Debt Management and Debt Consolidation are not the same thing. Our credit counseling organization helped clients get out of credit card debt through debt management plans, also referred to as DMPs. A DMP is an agreement that the client and creditors establish to reduce interest rates, close down accounts, and accept minimum payment arrangements. Our counselors acted as the middle man between our clients and their creditors.
Once entered into a DMP, the client agrees to pay the credit counseling office a monthly fee plus the total payment amount agreed to by the creditors. Then, the credit counseling office disburses those payments to your creditors on your behalf. It feels like debt consolidation because you’ll make a lump sum payment to your credit counseling office once per month, but in reality, your credit card accounts stay separate.
Companies that use the term debt consolidation are usually for-profit and require taking out a lower interest rate loan to pay off the credit cards with higher interest rates. It’s safest to stick to debt management plans. This article from NFCC goes into more details about the differences between the two.
Once you sign that agreement, you cannot change it. If your financial situation is expected to change in the near future and it isn’t going to change for the better, it’s best to hold off before you agree to enter a DMP. Because your payment plan will be calculated based on your current financial circumstances, you could put yourself at risk of not affording the monthly payment if your financial situation changes.
However, it’s good to note that if you do fall into tough times, you can usually skip a payment or pay later without risking getting kicked out of your payment plan. Some creditors allow you only 1 or 2 chances to do this. Beyond that, you’ll be removed from the plan and your interest rate will return to the way it was before the plan. Just something to keep in mind.
For more information about these debt management plans that can help you pay off your credit card debts (and medical debts) faster, please visit the National Foundation for Credit Counseling website at NFCC.org or schedule an appointment with a credit counseling office near you.