Please note that "debt management plans", offered by nonprofit agencies, are different from "debt settlement" plans or programs, which are run by for-profit companies and often have a reputation for scamming clients. To ensure you enter the right type of program (a debt management plan) please contact the National Foundation for Credit Counseling (NFCC) to connect with a reputable agency.
If you are having trouble making the minimum payments on your debt, have a large amount of debt, or debts that are currently in collections, you might consider entering a debt management plan to help. A debt management plan is an agreement you enter through a nonprofit credit counseling agency that will work with creditors to help you get back on track. Once you agree to the plan, your respective agency will consolidate your debt, help you to lower your interest rate and/or eliminate fees 🎉 and set you up with one simple, monthly payment.
To determine if you're a good fit without alerting your creditors or impacting your credit score, you can set up a free counseling session with the NFCC.
Here's what to expect during your free counseling session to determine whether a debt management plan is right for you:
1️⃣ The nonprofit agency will NOT alert creditors that you are considering a debt management plan until you agree to a specific plan. This might be important to you if some of your debts have been delinquent for almost 7 years, at which point they would otherwise be wiped from your credit report. In any regard, at Truebill, we recommend tackling your debt to improve your financial health over time.
2️⃣ Neither a free counseling session nor a debt management plan will negatively impact your credit score. In fact, implementing a debt management plan is likely to improve your credit score over time. While there will be a note in your credit report but this will NOT reduce your credit score.
3️⃣ Your respective debt counseling agency will likely ask several questions regarding your income, budget, debts, and overall financial health. You can use the information from Truebill to help answer many of these questions!
4️⃣ After your counseling session, the nonprofit agency will present an overview of what your debt management plan might look like, including what the monthly payment will be. Note that a debt management plan will not wipe out any of your debt. You are still required to pay off all your debt in its entirety, but they may be able to lower your interest rate or reduce minimum payments by working with your creditors. This means you will be in a position to save the most money over time.
Once you've spoken to a credit counselor and have made your decision, here's what to expect if you decide to enter a debt management plan:
1️⃣ While most debt management plans are low-cost or free, some nonprofit agencies may charge a small fee to enter a debt management plan. If you'd prefer a free plan, you might ask the NFCC to recommend an alternate nonprofit agency to consider.
2️⃣ Entering a debt management plan will involve alerting your creditors that you intend to pay off your entire debt.
3️⃣ A debt management plan will require paying off all of your debt in full. Luckily, this is usually at a much lower cost overall as a result of the agency working with creditors to reduce interest rates (sometimes even to 0%) and eliminate fees
4️⃣ A debt management plan is different from, and recommended over, a debt settlement plan (which involves paying a for-profit company to negotiate on your behalf) or filing for bankruptcy.
5️⃣ Though it rarely happens, there is a small chance that creditors will not agree to reduce their interest rate or eliminate fees. While unusual, you should be aware of this possibility.
6️⃣ Debt management plans can be helpful for unsecured debts, like credit cards and personal loans. They are not used for other debts, like mortgages or auto loans.
We hope this article is helpful as you consider a debt management plan and continue to use Truebill to improve your financial life!