Debt Management Programs: What are They & How to Get Help

Debt Management

If you’re struggling with credit card debt, a debt management program can help you lower your interest rates, consolidate your debt payments, and be debt free in 3-5 years. Find out if you qualify.

About Debt Management Programs

What is a Debt Management Plan?

A debt management plan is a carefully constructed payment schedule that consolidates credit card debts into one affordable monthly payment. Consumers in a debt management program agree to stop using credit cards in exchange for lower interest rates and more affordable monthly payments on their credit card debt. Nonprofit debt management programs enable borrowers to repay their debt in 3-5 years.

Features of a Debt Management Plan

  • Consumers make one consolidated monthly payment to a third party, typically a nonprofit credit counseling agency, instead of individual payments to all of their creditors.
  • Interest rates drop from as high as 25%-30% to about 8% or lower.
  • Pay off your debt in 3-5 years

Credit Card Debt Management: How to Enroll

InCharge’s nonprofit debt management program is customized to your situation.

In order to qualify, you must first complete a credit counseling session. You can do online credit counseling or call us.  Whether online or on the phone, a counseling session should take 25-60 minutes. Here’s what to expect.

  1. You will identify the root cause of your debt.
  2. You will complete a household budget.
  3. We’ll pull a snapshot of your credit report to review your balances and monthly payment requirements.
  4. We’ll provide you with a recommendation, based on your income and debt.
  5. If you qualify for the debt management program, you can enroll immediately.
  6. You have the ability to keep one credit card off the program, for emergencies.

Video: How Does a Debt Management Program Work?

This video explains how a nonprofit debt management program works by consolidating your credit card debt payments into one payment and saving you by reducing your interest rates and fees.

Pros & Cons of Debt Management

Debt management programs are one of the least-publicized, but most effective debt-relief options on the market. However, as is the case with all debt-relief solutions, consumers should research the matter to make sure they understand the ups and downs associated with a debt management program.

Pros of a Debt Management Program:

  • More affordable payments. Credit counselors at InCharge work with your card companies to reduce the interest on your credit card debt to a level that you can afford. In many cases, interest rates drop from the mid-to-high 20s down to single digits of around 8%.
  • Simple payment. You write one check to cover all credit card payments. No need to try and keep up with payment dates and no more late fees tacked on to your balance.
  • Timetable for eliminating debt. Debt management programs are set up to eliminate credit card debt in 3-5 years, or less, if the consumer is motivated to do so.
  • Impact on credit score. Your credit score may take a slight hit the first 6-8 months because the credit utilization portion of the FICO formula goes down. However, as your on-time payments (the largest portion of your credit score) is reported, your score will make a strong comeback.
  • Phone stops ringing. No more annoying calls from collection agency. Once you enroll, the calls will stop.

Cons of a Debt Management Program:

  • Only applies to credit cards. You can’t include other unsecured debt like student loans or medical debt.
  • Can’t miss. If you miss a payment, you lose whatever concessions card companies made for you.
  • Cards go away. One of the provisions of the program is that you stop using all but one of your credit cards and only use that one in emergency situations.
  • Not every company cooperates. The smaller banks and possibly some of the department store or gas station card companies don’t always agree to debt management programs.
  • Takes too long. Some consumers want quick solutions and this usually isn’t one. It’s set up for 3-5 years, so payments are lower and you have a better chance to succeed.

Is a Debt Management Plan for You?

Not all consumers are in debt for the same reason and that’s why there are multiple solutions for people trying to climb out of a financial hole.

The ideal candidate for a debt management plans is someone who has high-interest debt (i.e. credit cards) – and a steady enough income to handle that debt – but needs help creating a better budget to guide them down the right path.

On the other hand, debt management programs don’t work for consumers who simply have too many forms of debt – i.e. credit cards, mortgage, car loan, student loan, medical bills – and not enough income to satisfy all their lenders.

Other factors that may qualify (or disqualify) you for debt management include:

  • Can I live without a credit card?
  • Will I be responsible in making a payment every month?
  • Will I be making an expensive purchase in the next year and need credit to get it?
  • Do I need outside support to coach me through a crisis?

Take a close look at your situation and see which side you fall on. If you’re not sure, or need help making a decision, call a nonprofit credit counselor at InCharge and get free advice on how to create an affordable budget.

Other Debt Relief Options

Debt management plans might not be the right solution for your credit card problem, but as credit counselors constantly remind us, there are other debt-relief options.

If debt management doesn’t work for you, the alternative solutions could be:

Debt Consolidation Loan

If you qualify – i.e. you have a very good credit score – you could pay off your credit card debt with a loan that will have a lower interest rate and monthly payment.  Unfortunately, you still owe the bank that gave you the consolidation loan so you’ve transferred the problem from one source to another.

Debt settlement

Debt settlement is when a company negotiates a settlement for you to pay less (sometimes a lot less) than what is owed on your credit card debt. Sound too good to be true? It is! There are a lot of negatives that make this a risky alternative. This is something that only should be considered if all other avenues are closed.

Bankruptcy

When the size of your debt overwhelms your income’s ability to pay it, it may be time to consider bankruptcy and a fresh start. A successful bankruptcy filing will eliminate all credit card debt, but also leaves a 7-10 year negative mark on your credit report. The good news is that credit card companies are getting better at giving you a quick “second start.”

Do-It-Yourself Debt Management

You can absolutely set up a debt management program on your own. We’ve published this guide on how to do it as well as a debt management template to organize your payments.

Frequently Asked Questions

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.

Can I open new credit cards while on a debt management program?

We strongly discourage you from opening new credit cards on a debt management program. You are allowed to keep one credit card open while enrolled, and you should use this to cover emergencies. Otherwise, we recommend creating a budget and looking for ways to generate additional income.

Can I get a mortgage on a debt management program?

Yes, you can get a mortgage on a debt management program, as long as your credit score is healthy and your debt payments do not consume too high of a percent of your income.

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.

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. You can make additional payments while on the plan and pay off your debt faster.

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.

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%.

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 a Debt Management App that makes managing your accounts, checking your balances, and rescheduling payments easy and convenient. The Debt Management App also allows you to check your up-to-the-minute “debt free” percentage: “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.

Sources

InCharge’s Debt Management Program Savings Example

Someone with $15,000 in credit card debt paying 20 percent interest would pay $456 a month over 48 months to eliminate the debt. That is $22,344, including $6,922 in interest.

About the author

Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D.C., Tampa and Sacramento, Calif., where he reported and commented on everything from city and state budgets to the marketing of local businesses and how the business of professional sports impacts a city. Along the way, he has racked up state and national awards for writing, editing and design. Tom’s blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N.C., with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.