Debt Management Program and Plans

GET DEBT HELP

A Debt Management Program (also called a debt management plan) is a carefully constructed financial plan to pay off unsecured debt without taking out a loan. It often requires clients to stop using credit cards and make monthly payments to a credit counseling agency. A debt management program ideally provides you with lower monthly payments and a lower interest rate.

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Debt Management Help: One Way To Deal With Credit Card Debt

Debt can be a confusing subject, especially when you’re heavily into it, which most Americans are.

In the United States, total consumer credit – debt incurred for purchasing goods or services – is $3.1 trillion. Nearly forty percent of America’s 120 million households carry a balance on credit cards. The average balance for each home that carries credit card debt is $7,200.

A Debt Management Program, or a DMP, can help families and individuals struggling with that much debt. DMPs are the quiet, often misunderstood financial solution for people barely staying afloat because of credit card debt or medical bills or just plain over-spending.

The program is a carefully constructed financial plan to eliminate unsecured debt without taking on a loan. It often requires clients to stop using credit cards and make monthly payments to the credit counseling agency, which uses the money to pay off creditors.

The plan includes ongoing educational material and advice – both free! – from certified consultants to help struggling consumers get back on their feet financially. And stay there after completing the program!

A Debt Management Program is not a loan. The counseling agencies communicate with creditors to reduce the interest rate and lower or waive late fees so that monthly payments go down. The agencies work in the client’s favor, saving them time and money in paying off the debt.

Debt Management Solutions: No One-Size Fits All Program

InCharge’s nonprofit debt management program is customized to your situation, based on the information we gather about your income and debts. Our solutions are also customizable, allowing you to include or remove accounts in the program.

When an InCharge credit counselor answers your call, there is a process the counselor goes through to make sure a debt management plan is the best solution for your problem. Not all financial problems belong in a DMP. In some situations, consumers are better served through debt settlement or even bankruptcy.

But if a debt management program is the best remedy, you can count on your debt being eliminated in 3-to-5 years. During that time, you will receive a free financial counseling session during which the counselor reviews your income, expenses and details on your credit report. The counselor provides a solution that includes reduced monthly payments and interest rates, plus elimination or reduction of future penalties or fees.

Our Step by Step Process

  1. Your credit counselor (or our online counseling program) will collect data from you on sources of income (weekly pay, bank accounts, etc.) and expenses such as mortgage/rent, food, utilities, clothing, credit card debt, etc. to better understand your current financial situation.
  2. Your credit counselor pulls your credit report from one of the three major credit reporting bureaus. The credit report is used to verify information such as name, address, social security number, etc. It also helps verify information on who you owe and if you’re delinquent. This is considered a “soft pull” meaning there will be no impact on your credit score.
  3. The counselor comes up with a budget that evaluates monthly expenses versus monthly income and whether you have a surplus or deficit at the end of the month.
  4. At this point, the education process begins. The credit counselor provides access to educational resources (books, handouts, links to articles) on various aspects of your budget. Your budget is measured against the national average in six categories.
  5. If you are running a deficit in any of the six categories, you’ll receive suggestions for turning that around. Your credit counselor may refer you to social services that could increase your income or provide free benefits such as food, clothing, assistance with medications and places to get help paying rent or utilities. These services are free and you can use them anytime.
  6. Now, your credit counselor evaluates your situation to determine if a debt management plan is the best solution. The final recommendation is based on your goal and the best solution to reach that goal, which often is a debt management plan.
  7. If the best solution is not a debt management plan, your credit counselor will recommend an alternative solution best fitted to reaching your goals.
  8. If you accept the recommendations for a DMP, your counselor compiles a benefits summary. That summary highlights the monthly reduction in debt payment, in addition to the interest savings on each account. It also lists any fees that may be associated with the program.
  9. When you sign the agreement, the counselor notifies your creditors and works with them to reduce interest rates and lower your monthly payment.
  10. Most creditors agree to the terms immediately. Some could make a counter-offer based on the status of your account.
  11. When all sides agree on the terms and conditions, the account becomes active.
  12. Your monthly payment is sent to InCharge, which then distributes a specific amount to each creditor, according to the agreed upon terms.
  13. It is important that your payment to InCharge be made on time every month, or the creditors may cancel any concessions they made on interest rates and/or fees.
  14. You will receive monthly statements from both InCharge and the creditors. Compare the monthly statements to make sure payments are credited properly.

InCharge provides a welcome kit to each new client that includes a phone number you can call anytime to discuss your situation with our credit counselors. They provide ongoing service and advice throughout the time you are in the program.

If your situation changes and you suddenly have enough money to pay off your account, you can do so at any time, with no penalty.

If all goes as planned, within 3-to-5 years you will be debt free and floating on top of the world.

Debt Management Solutions

Debt Management Plans

Goal is to access reduced interest charges, late fees and monthly payments. Make monthly payments to credit counseling agency, which then pays creditors. Educating the client on root cause of debt is an important part of the process. No impact on credit score.

Debt Settlement Plans

The goal of a debt settlement plan is to negotiate a significant reduction on the balance owed. Service fees can be substantial. The amount of debt that is reduced is treated as taxable income and must be reported to IRS. This could have a considerable negative impact on one’s credit score.

Debt Consolidation Programs

The goal is to get a loan at a reduced interest rate and consolidate credit into a single monthly payment. Generally speaking, the debt is paid over a longer period of time. Loans often require collateral such as a home or car. Little impact on credit score, as long as no payments are missed.

Will A Debt Management Program Affect My Credit Score?

FICO, the best-known of several companies that calculate personal credit scores, says that a debt management program will not affect a person’s credit score.

Participating in a debt management program may be noted by a creditor, but that does not negatively impact the score.

InCharge considers itself a partner in a Debt Management Program and communicates with clients often to prevent late payments. The typical program runs from 36-to 60 months, but if the client stays engaged, he leaves credit card debt free.

Financial Education Is A Vital Element

The National Foundation for Credit Counseling (NFCC) requires member agencies like InCharge to provide free financial education.

Debt Management Program clients receive a welcome kit with a personal finance workbook, budgeting tools, and links to financial calculators and money-saving articles.

DMP clients also have access to “I’m InCharge” an online account management tool with real time information on debt balances as well as the I’m InCharge Mobile App.

Not To Be Confused With Settlement or Consolidation

A Debt Management Program is often confused with Debt Settlement and Debt Consolidation, though they are three distinctly different ways of dealing with debt.

In very basic terms, Debt Management Programs seek a reduction in interest rates and monthly payments with no impact on credit scores. Debt Settlement seeks to negotiate a payment that is less than the balance owed and has a considerable negative impact on a credit score. Debt Consolidation seeks one monthly loan payment that will pay off the debt. Impact on the credit score varies.


Will A Debt Management Program Ruin My Credit Score?

In short, no. A Debt Management Program will not ruin your credit score. Recent data from the National Foundation for Credit Counseling show that consumers who received credit counseling and enrolled in a debt management program experienced positive growth in the credit score in eighteen months.

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Life on a Debt Management Program

What’s life like on a debt management plan? Paying off your debt can mean sacrifices, but if you qualify, that means you should have the income to successfully finish. And, on InCharge’s DMP, we let you keep one credit card open, for emergencies.

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How Much Debt Do I Need?

You can qualify for a debt management plan with as little as $1000 in debt, though the average client has $15,000. A debt management program includes credit card accounts, but the plan also pays medical bills and other debts. Ask your credit counselor what can be included on your program.

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Debt Settlement

Debt Settlement is making a deal with creditors to pay less than the total balance owed. As attractive as that sounds, there are some severe penalties, notably to your credit score and tax liabilities.

Debt Settlement usually involves attorneys. There are fees involved, typically a percentage of the settlement amount, which can be significant.

Typically, the attorney asks the client to stop making payments to the creditor and instead, contribute money on a regular basis to a fund. When the fund reaches a certain level, the attorney will approach creditors and seek an agreement to settle for that amount.

The client will be expected to provide the creditors with documentation of their financial status, meaning income, assets and all debts. Creditors want verifiable proof that the person can’t pay before they agree to a Debt Settlement. They are very suspicious of someone just trying to save money by paying less than they owe.

If the creditor accepts the agreement, the debt is considered settled. However that is not the end of the story.

The client must report the amount forgiven on their taxes as income. For example, if the creditor forgives $5,000 of a $10,000 debt, that $5,000 must be reported to the IRS as income and the client must pay taxes on it.

Finally, there is the matter of how it affects a credit score. In the above example — $5,000 forgiven on a $10,000 balance – the credit score companies see that as a negative because only half the debt was actually paid.

The person ran up $10,000 in debt, but paid only $5,000 of it. There is concern about the risk of not having a debt paid in whole in the future, thus there is a negative impact on the overall credit score.

The client will be expected to provide the creditors with documentation of their financial status, meaning income, assets and all debts. Creditors want verifiable proof that the person can’t pay before they agree to a Debt Settlement. They are very suspicious of someone just trying to save money by paying less than they owe.

If the creditor accepts the agreement, the debt is considered settled. However that is not the end of the story.

The client must report the amount forgiven on their taxes as income. For example, if the creditor forgives $5,000 of a $10,000 debt, that $5,000 must be reported to the IRS as income and the client must pay taxes on it.

Finally, there is the matter of how it affects a credit score. In the above example — $5,000 forgiven on a $10,000 balance – the credit score companies see that as a negative because only half the debt was actually paid.

The person ran up $10,000 in debt, but paid only $5,000 of it. There is concern about the risk of not having a debt paid in whole in the future, thus there is a negative impact on the overall credit score.

Debt Consolidation

Debt Consolidation Programs involve packaging all debts together and paying them off by taking out a loan at reduced interest rates. The lower rate is often secured by using other assets, such as a home or automobile.

For example, a person with three or four credit cards, might owe a combined $20,000 on the cards and be paying something like 24 percent interest. The credit counseling agency representing him could go to a bank and negotiate a loan at half that rate and save quite a bit of money in interest.

The loan money would be used to pay off the credit cards, creating a zero balance on each card. Instead of making three or four payments every month, the person would have only one payment.

There are some similarities between Debt Consolidation Programs and Debt Management Programs, but one glaring difference: Debt Consolidation Programs don’t require a client to give up their credit cards. That leaves the temptation to run up more debt, which only extends the problem.

The loan money would be used to pay off the credit cards, creating a zero balance on each card. Instead of making three or four payments every month, the person would have only one payment.

There are some similarities between Debt Consolidation Programs and Debt Management Programs, but one glaring difference: Debt Consolidation Programs don’t require a client to give up their credit cards. That leaves the temptation to run up more debt, which only extends the problem.

Did You Know

On average, InCharge is able to reduce the interest rate by 6 to 9 percent. If the rate goes down to 7 percent, the monthly payment drops to $381 (including the average monthly fee of $22). The total paid is $18,669 and only $2,243 in interest. The total saved over 48 months is $3,675.

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Responsibilities in a Typical DMP

A successful debt management program involves serious discussions among consumers, creditors and InCharge credit counselors to construct a plan that eliminates all debts and steers the consumer toward responsible use of credit.

Each party has a role in building a foundation for success. The consumer’s role includes:

InCharge’s responsibilities include:

The creditor’s role is:

When you complete program, inform credit bureaus that consumer paid all debts in full.

Debt Management Frequently Asked Questions

What is a Debt Management Plan?

A debt management plan (DMP) is a program to assist consumers in eliminating debt, while educating them on responsible ways to avoid debt. The trained and certified credit counselors at InCharge work with you and your creditors to arrive an affordable monthly payment plan to pay off the debt in 3-to-5 years.

How will a debt management program affect my credit score?

InCharge does not report your participation in a debt management program or plan to the credit bureaus, however your creditors might. Your credit score may decrease when your credit cards are closed and then increase as you make consistent on-time payments over the course of the program. Every person’s credit situation is different. In order to better understand how a debt management program may affect your credit score, learn more about how credit scores are calculated.

How can I choose the best plan for me?

Make sure you are working with an NFCC-member nonprofit credit counseling agency like InCharge Debt Solutions. Nonprofit credit counselors provide impartial financial advice that has your best interest in mind. A nonprofit debt management program will have low fees and work to secure interest rate reductions on your credit card debt, so that you are able to pay off your debt by making consistent affordable payments.

How fast can I pay off my debt on a debt management program?

You should be able to pay off your credit card debt in 3-5 years on a debt management program or plan. Your payment will be based on five years of equal installments, paid monthly, but you can pay your debt faster. While you are on the program, we will share cost-savings strategies that will free up more of your household income to pay off debt.

What are the debt management program’s fees?

If you decide to participate in our debt management program, there is an average set-up fee of $40, and an average $25 monthly fee, not to exceed $75 and $55, respectively.

Will InCharge allow me to use credit cards?

InCharge recommends that you suspend use of credit cards while paying down your debt. You may choose to keep one credit card account open for emergency or business use.

How would I enroll in a debt management program with InCharge?

To start the process, call one of our credit counselors at 800-565-8953 or fill out our Get Help Now form. You will receive a free credit counseling session and our counselors will tell you if you qualify for a DMP.

What are the fees to enroll in your program?

InCharge’s fees vary because they are regulated by states. The fee structure can range from $0 to $55, depending on where you live. The number of accounts and amount of debt you place in the program also affects the fees. Some fees can be reduced in hardship situations. The average monthly fee at InCharge is $25.

How long will it take to complete InCharge’s debt management program?

The average length of a DMP is 3-5 years, but is shorter for clients who decide to aggressively deal with their debt. Many clients pay down debt faster by using income tax returns, inheritance money or some other unexpected source of income. There is no penalty for paying the debt off early.

What benefits can InCharge provide with its program?

The top benefit is a reduction in both monthly payment and interest rates. There is the convenience of making only one payment for all your debts. You also receive valuable education materials, including financial tips and reminders for payments due. InCharge clients receive a monthly statement that details payments made to each creditor and a progress reports on how much of the debt has been paid.

Does InCharge keep my information confidential?

All information shared with InCharge is confidential. Please see our privacy policy for details.

Will enrolling in a DMP improve my credit score?

Enrolling in a DMP with InCharge will not impact your credit score, but the closing of your credit card accounts may have a temporary negative impact. When you close credit card accounts, it reduces the amount of available credit you have, which is one of the key factors in determining a credit score. However, as you make on-time monthly payments to the program, they are recorded by your creditors and have a positive impact. On-time payment is the biggest factor in determining your credit score so eventually, your score will reflect that you paid your debts.

Do I have to include all of my bills in a debt management program?

Only unsecured debt – credit cards, repossessed cars, medical bills, debts that have gone to a collection agency, etc. – can be included in a DMP with InCharge. Mortgages, auto loans or current utility bills do not qualify.

How will enrolling in a DMP affect the interest rate on my credit accounts?

One of the benefits of enrolling with InCharge includes significant reduction on interest rates from participating creditors. For example, you could see you the interest rate on your credit card accounts drop from 25% to as low as 2%, with the average being somewhere around 9%.

Can I enroll in your program online?

A credit counseling session can be completed online. However, if you choose to enroll in the DMP, you will be contacted by our credit counselors to confirm the information you provide and the benefits you’ll receive.

Is a debt management plan the only solution you offer?

After reviewing your situation and credit profile, our credit counselors may recommend an alternative solution such as bankruptcy.

What is the difference between bankruptcy and a debt management program?

Bankruptcy is a last-ditch attempt to settle debts. It is a legal proceeding through which you liquidate all assets in order to wipe out debt (Chapter 7) or persuade creditors to approve a repayment plan over a 3-to-5 year time frame to eliminate debt. There are severe consequences for both, including a drop of as much as 200 points in your credit score and the bankruptcy action remaining on your credit report for 7-to-10 years. A debt management program is not a legal proceeding. A notation that you are in a DMP could appear on your credit report, but there should be little impact on your credit score until you complete the program. At that time, you could expect your credit score to improve, sometimes dramatically.

Will InCharge stop creditors from calling me?

When you enroll in a DMP and start making payments, the calls from your creditors will end.

How will creditors find out I joined a debt management program?

InCharge credit counselors contact the creditors to make them aware you are participating in the program and request concessions on interest rates and monthly payments. You also receive responses from creditors once proposals are accepted.

What happens if I can’t handle the payments?

InCharge counselors work with you to establish a debt management plan that allows you to make affordable payments every month. If your financial situation changes, call InCharge immediately and our credit counselors will review your situation.

Debt Management App

InCharge Debt Solutions clients have access to the “I’m InCharge” Debt Management App that makes managing your accounts, checking your balances, and rescheduling payments easy and convenient. I’m InCharge also allows you to check your progress in real time, providing details on your progress, including how much debt you’ve paid off, how much debt you have left and your up-to-the-minute “debt free” percentage, as in “You Are 55 percent Debt Free.” Research shows that tracking a goal makes you more likely to stay motivated and accomplish it. With the Debt Management App, InCharge strives to be the “Fitbit” of the personal finance world.

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