6 tips for finding the right debt management plan for you
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I have been considering entering into a debt management plan, but how do I go about finding the right company to help me? -- Ivette
You are right to be cautious when looking for an organization that offers debt management plans (DMPs). Some agencies are better than others. And even when you find a quality company, the competence and style of the people you deal with can vary dramatically. Here are the six things you should know before scheduling an appointment and signing up for a plan.
- Work with a membership-based agency. The agency you choose should either be affiliated with the National Foundation of Credit Counselors (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA) Both of these groups set a high level of standards for their member agencies. You can find an organization near you via the groups' websites.
- Demand a good counselor. Just because a credit counseling agency is a member of one of the aforementioned groups, that doesn't mean the employee who is assigned to you is any good or a correct match. Counseling is free, but you have a right to excellence. The person you meet with should be nonjudgmental, knowledgeable, caring and interested in your situation. Yes, each of these things. Most are, but some are bored, unhelpful and just plain bad counselors. If yours is lacking in any way, kindly request to meet with another.
- Prepare in advance. All counseling sessions include a detailed review of your assets, liabilities and budget. Get all of your numbers and statements together beforehand so you can make the most of your appointment. Beyond that, you'll also need to present background information of how you got into financial hot water and what your short- and long-term goals are. So think about them and be ready to discuss.
- Don't expect miracles. If you have very little money coming in, the debt management plan may not be one of your options. These plans are designed to help people out of debt in three to five years, but they aren't for everyone. Your counselor will (or should) suggest it only when you have enough cash left over after subtracting your necessary expenses from your income. If you don't, they'll come up with other recommendations.
- Stay on top of your DMP. In the event that you do qualify for a repayment plan, don't just do an initial financial document dump-off with the company and then forget about your accounts for a few years. You must be an active participant. Your credit card companies will continue to send statements to you, so open and read them carefully for accuracy. For example, the agency may have been able to negotiate a reduced interest rate, so check to confirm it really has been lowered. Make sure the balances are always correct, too, and send them in to the agency quarterly so they can keep track.
- Remember the rules and your goals. When you sign up for a debt management plan, you agree to not get into any more debt while you're paying down what you already owe. Commit to a better way of using money and credit. Most agencies offer free to low-cost financial education, so take advantage of the services they provide.
A credit counseling agency is often a great place to start when trying to get a handle on problematic debt. Even if a debt management plan won't work for you, you should emerge with a clearer picture of what you earn and spend -- and some sage advice on how to do it all a little better.
See related: 8 steps to picking a credit counselor, Do debt management plans hurt your credit score?, The pros and cons of debt management plans
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: February 29, 2012