Credit Counseling vs. Debt Management Plan - InCharge Debt Solutions

Reducing Debt Through Credit Counseling or a Debt Management Plan

Consumer spending is the rock of our economy, but too much of a good thing can lead to trouble — especially when we discover we’ve over-financed our fun. Or maybe we were in great shape until an accident, major illness, or job loss curtailed our ability to earn.

However it piles up, consumers swamped with red ink should know there are options to get their ship righted, to get their debt back under control. Two choices that offer smooth, stable futures are credit counseling and debt management plans.

Credit counseling vs. debt management isn’t exactly a false choice. Instead, it’s sort of like Batman vs. Superman: Despite their apparent differences, they were on the same side from the start, and everyone — especially those who grew up reading World’s Finest comics — knew they’d end up friends and allies.

What Is Credit Counseling?

Credit counseling — the savvy Batman in this sometimes-partnership — involves coaching by a professional who, by training, study, and experience, conveys insights that can get debt-plagued consumers back on track.

The initial goal of a credit counselor is to evaluate your financial situation. Are you in serious, even critical, trouble? Or do you simply need to get yourself better organized?

This analysis will involve a meeting, usually by phone (though you could come to their offices in person), in which you lay out, in detail, your household finances: information about what you owe, other expenses, possible balloon payments, your income, your assets — anything that has a bearing on your money health.

Be prepared, also, to describe your goals. Do you simply want to be debt-free by a certain date, or do you have additional plans — saving for a house, for youngsters’ college, for an expensive trip, for retirement, for all of the above?

Your counselor will take all of this into consideration before presenting his/her analysis and plan of action. The solutions can range from simply making and adhering to a budget to, in extreme cases, recommending bankruptcy.

What Solutions Does Credit Counseling Offer?

Usually, a credit counselor’s advice falls somewhere between the extremes, and can involve a combination of solutions, among them:

  • Create a budget, or improve/refine the one you have. If your debt troubles are a result of simple mismanagement or disorganization, a proper budget may be all that is necessary to set you straight.
  • Provide guidance about your options for debt consolidation: Enroll in a debt management program; apply for a personal loan; refinance your house, using some of your equity to pay off your consumer debt; take out a home-equity loan.
  • Advise you about closing some or all of your credit card accounts, how to manage the ones you keep open (if any), and how those actions may affect your credit score.
  • Recommend debt settlement, in which you, or your liaison, attempt(s) to convince creditors to accept a lump sum that is less than the balance owed.
  • Counsel you about bankruptcy.

You likely will pay a fee for some counselors’ services, although many are modest and most are free. Check with InCharge Debt Solutions to get started.

Several of the more moderate solutions described above hinge on whether the client possesses the discipline to follow the coach’s instructions. A credit counselor can be Nick Saban rolled into Dabo Swinney wrapped in Bill Belichick, but if the client won’t stick to the program, he can’t beat Vanderbilt — er, Visa.

What Is a Debt Management Plan?

A debt management plan, or DMP, often is the best among assorted viable options that emerge during a credit counseling session. Rather than tackle the counselor’s recommendations on your own — and who has the time or energy for that? — you surrender the whole caboodle to his/her debt management team.

DMP does not involve a loan, does not take your credit score into account, does not require the consumer to negotiate terms with his/her creditor, does not involve keeping track of a dozen or more fresh details.

DMPs — the Superman in our superhero partnership — are simple and straightforward, and, as part of your nonprofit credit counseling agency’s toolbox, are practically invincible. Once you are enrolled, the agency will contact your credit card companies to work out a suitable payment plan, often under much more favorable interest rates.

Thereafter, you will make a single monthly payment that in all likelihood will be lower than the combined minimum payments required of you now. If you’ve fallen behind and are racking up late-payment penalties, those can be negotiated away, too. Creditors will be reassured knowing you have committed to a solid repayment plan.

Whatever you do, do NOT equate a debt management plan with debt settlement. Just because they both start with “debt,” they are not at all the same.

Debt settlement involves radical creditor brinksmanship that may not resolve your balances at all and will surely devastate your credit score.

Debt settlement in a nutshell: You stop paying your creditors, and instead feed an escrow savings account; after some months, the debt settlement company attempts to settle your debt for some fraction of what you owe, paid in a lump sum from your escrow account.

By contrast, the goal of a debt management plan is to get your creditors repaid, in full, under a date-certain time frame — usually three to five years. Stick to it, and you will emerge debt free and brandishing a credit score that’s the envy of your peer group.

Is Credit Counseling or a Debt Management Plan Right for You?

Credit counseling is a perfectly reasonable approach to getting consumer debt under control. The debtor who is proactive, resourceful, and disciplined can, by sticking hard by the credit counselor’s plan, regain control of his financial future.

If this sounds like you — you never hit the snooze button; you never skip a workout; your calendar is always current; you’re always on time; you honor the food pyramid — you’re an excellent candidate for do-it-yourself debt mastery, with just a little help from the credit counselor.

In fact, we’re not sure how you got into debt trouble in the first place.

If, on the other hand, you’re fed up with keeping track of payment dates, fluctuating interest rates, the risk of late-payment fees, and/or the temptation to spend relentlessly, a debt management plan operated through a nonprofit credit counseling agency might be just the thing.

If you worry that taking out a new, larger debt consolidation loan,  when you’ve zeroed out your credit cards, debt management could be your best bet.

Whichever is the winning course for you, begin the journey by consulting a nonprofit credit counselor. Get yourself a partner dedicated to your fiscal fitness. Whether you wind up doing it yourself or allied with a debt management team, you’ll be better off having made a fully informed choice.

Conquer Your Debt

Debt management can help you conquer your debt and manage your household budget


Sources

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NA (2017, October 25) What’s the difference between a credit counselor and a debt settlement or debt relief company? Retrieved from https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-credit-counselor-and-a-debt-settlement-or-debt-relief-company-en-1449/

Carrns, A. (2019, July 5) How to Manage Your Credit Card Bills, Which Experts Say Are Late More Often. https://www.nytimes.com/2019/07/05/your-money/credit-cards-late-payments.html

NA (ND) Debt Consolidation vs Credit Counseling: Which One is Better? Retrieved from https://www.valuepenguin.com/personal-loans/debt-consolidation-vs-credit-counseling

Eaglesham, J. and Andriotis, A.M. (2019, August 10) That Offer to Make You Debt-Free? It Can Make You Worse Off. Retrieved from https://www.wsj.com/articles/that-offer-to-make-you-debt-free-it-can-make-you-worse-off-11565409601

Weliver, D. (2019, March 18) 10 Things You Should Know About Debt Management Programs. Retrieved from https://www.moneyunder30.com/10-things-you-should-know-about-debt-management-programs

Musinski, B. (2018, September 21) Everything You Need to Know About Credit Counselors. Retrieved from https://creditcards.usnews.com/articles/everything-you-need-to-know-about-credit-counselors

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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.