DEBT RELIEF

What is a Debt Management Plan? How can it help?

A debt management plan is NOT a loan.  In a typical program, debt management companies work with creditors on your behalf to reduce your monthly payment and interest rates on your debt and waive or reduce any penalties. The parties agree on an affordable payment schedule that allows 3-to-5 years to pay off your debt.

A debt management plan is part of the package of debt consolidation plans that are designed to help people regain control of their finances while reducing unsecured debts. An unsecured debt is one that is not backed by collateral, and includes credit cards, medical bills and student loans.

It is one of several ways you can take control of your debt and reduces the number of payments you make each month and can save you money in interest and fees.

Those who enroll make monthly deposits with  us (non bearing interest account), which then is used to pay the debts according to a predetermined payment schedule developed by the counselor and creditors. Your monthly payment is tailored to what the customer can afford, and you know before agreeing to take part in the program what that monthly amount is. An analysis of household income vs. expenditures determines the monthly payment.

Advantages of a Debt Management Plan
Some points to remember when enrolling in a DMP:
  • Offers credit card consolidation without a loan

  • It will help you stay more organized and punctual with your bills and payments.

  • It creates a realistic monthly budget with a financial goal.

  • Making regular and timely payments can improve your credit report and credit score over time.

  • Debt Consolidation 

  • Creditors or collectors have incentive to stop calling.

  • It can take 36 to 60 months to repay debts using a DMP.

  • The organization may restrict the consumer from using or applying for additional credit while enrolled in the plan.

  • If DMP payments are late, the consumer may lose progress on decreasing the debt and lowered interest rate or fees.

  • You may qualify for lower interest rates on your debt and a lower monthly payment.

Signing up for a Debt Management Plan

If you decide a debt management plan is right for you, your credit counselor can help you enroll. He or she will work with your creditors to negotiate interest rates and to come up with a payment schedule, which you will review and approve before beginning the plan (YOU MUST APPROVE THE PLAN).

Once it is determined how much money is left after basic living costs like rent, mortgage, utility bills, secured loans and living expenses are paid, the remaining amount can be divided among creditors.

Then, you’ll make a deposit monthly to Strong, Jacob & Associates, LLC. In turn, we will distribute the money to your creditors according to the agreed-upon payment schedule.

After you enroll in a plan, follow these guidelines to help ensure that the program is working for you:
  • Make note of which of your debts and bills will be paid via the DMP and which ones you still must pay on your own each month.

  • Pay the counseling agency on time each month (automatic deduction required)

  • Review your monthly statements to ensure that the counseling agency is paying your bills on time and according to plan.

  • A debt management plan typically takes care of only unsecured debts.

Here is step-by-step description of what to expect from Strong, Jacob & Associates, LLC:
  • Be prepared for an interview that will touch on all areas of your income and expenses, including rent, utilities, credit card bills, medical bills and any other financial obligations.

  • During the session, the counselor will pull your credit report and verify information with you. This is a “soft pull” which means there will be no effect on your credit score.       

  • The counselor should make suggestions on areas where you could decrease spending and increase income as well as offer free education material for use down the line.

  • The counselor will evaluate your position and If your cash flow situation is still a negative, the counselor could offer a debt management program as a solution.

  • If you agree to enroll in the program, the counselor works up a budget proposal and sends it to your creditors for them to approve or make a counter proposal.

  • You and the creditor have to agree on the final terms that include monthly payment, fees involved and how long the payment schedule will run before the debt is eliminated.

  • In most cases, when both sides agree to the terms the counselor will ask for your bank account information so that monthly payments come automatically from your account. The payment goes to the credit counseling agency, which then disburses money to the creditors under the agreed upon terms.

  • The agreement is sent you via email or regular mail. Once it is signed and returned (typically one day for email, 3-5 business days for regular mail), the program begins.

  • You will receive monthly statements from both the creditor and the credit counseling agency. Compare the two statements to be sure payments are credited properly.

  • If one debt is paid off before the others, your monthly payment remains the same. Any extra funds are split among the remaining creditors to pay off those debts faster.

  • If you have any questions about the terms or conditions, call us immediately. They are your liaison with creditors and can smooth out any issues you have.

  • If you suddenly run into an unexpected amount of money, you can pay off your balance early with no penalty.

Things You Should Know About Debt Management Programs:
A debt management program is one way to dig your way out of debt troubles, but there are some things that should be considered before enrolling:
  • DMPs are 3-to-5 year programs. That requires a lot of discipline and commitment. If you drop out of the program for any reason, you lose all the concessions creditors made for you on interest rate reduction and elimination of penalties for late fees, etc.

  • You will be asked to close all credit card accounts while in the program. Some agencies may allow one card for emergency use, but this can be a difficult hurdle for people.

  • Be sure to call your creditors and verify that they have accepted the terms of the debt payment plan proposed by us (objective verification).

The consumer’s role includes:
  • Be honest and accurate when providing information on income and expenses.

         

  • Be disciplined about making full payments, on time, every month.

  • Track your progress through statements every month.

  • Avoid new credit. There could be severe penalties for trying to open new lines of credit.

  • Take advantage of free education information provided to help in managing debt.

Strong, Jacob & Associates, LLC role includes:
  • Thoroughly review consumer’s financial situation and suggest possible solutions to eliminate debt.

         

  • Offer educational tools that help consumers understand root cause of their debt; why it’s important to budget properly budge; and how to avoid debt in the future.

  • Work with creditors to reduce interest payments and waive or reduce penalty fees.

  • Serve as liaison between consumer and creditor to arrive at affordable and acceptable monthly repayment schedule.

  • Provide monthly status reports on amount paid to each creditor and remaining balance.

  • Be available to answer questions while repayment process is taking place and follow up with consumer when program is completed to update educational tools.

The creditor’s role includes:
  • Be open to designing a repayment schedule both sides can live with.

  • Be prudent, but fair about making concessions on interest rates and penalty fees.

  • Keep accurate record of payments and provide consumer with monthly status reports.

  • When debt is fully repaid, send status update to national credit reporting agencies.

  • If the three parties work together responsibly, the program should eliminate all debts within 3-to-5 years.

Debt Management Plan FAQs