Today’s topic for Financial Literacy Month 2014: Your Finances from A to Z is Questions to ask about a debt management plan.
For the month of April, we will be bringing you daily posts centered on our personal finances – saving, making and managing our money.
For many choosing to pay down their debts, enrolling in a debt management plan is an option. Prior to committing to a plan, there are some questions you need to be contemplated.
How Does A Debt Management Plan Work?
You deposit money each month with the credit counseling organization. The organization uses your deposits to pay your unsecured debts, like credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates and waive certain fees, but check with all your creditors to be sure that they offer the concessions that a credit counseling organization describes to you.
A successful debt management plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You also may have to agree not to apply for or use any additional credit while you are participating in the plan.
Is a Debt Management Plan Right For You?
In addition to the questions already listed, here are some other important ones to ask if you are considering enrolling in a debt management plan:
- Is a debt management plan the only option you can give me? Will you provide me with on-going budgeting advice, regardless of whether I enroll in a debt management plan? If an organization offers only debt management plans, find another credit counseling organization that also will help you create a budget and teach you money management skills.
- How does your debt management plan work? How will you make sure that all my creditors will be paid by the applicable due dates and in the correct billing cycle? If a debt management plan is appropriate, sign up for one that allows all your creditors to be paid before your payment due dates and within the correct billing cycle.
- How is the amount of my payment determined? What if the amount is more than I can afford? Do not sign up for a debt management plan if you cannot afford the monthly payment.
- How often can I get status reports on my accounts? Can I get access to my accounts online or by phone? Make sure that the organization you sign up with is willing to provide regular, detailed statements about your account.
- Can you get my creditors to lower or eliminate interest and finance charges, or waive late fees? If yes, contact your creditors to verify this, and ask them how long you have to be on the plan before the benefits kick in.
- What debts are not included in the debt management? This is important because you will have to pay those bills on your own.
- Do I have to make any payments to my creditors before they will accept the proposed payment plan? Some creditors require a payment to the credit counselor before accepting you into a debt management plan. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency.
- How will enrolling in a debt management plan affect my credit? Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it cannot be done. Accurate negative information may stay on your credit report for up to seven years.
- Can you get my creditors to re-age my accounts that is, to make my accounts current? If so, how many payments will I have to make before my creditors will do so? Even if your accounts are re-aged, negative information from past delinquencies or late payments will remain on your credit report.
If you choose to enroll in a debt management plan, make sure you continue to pay your bills until the plan has been approved by your creditors. If you stop making payments before your creditors have accepted you into a plan, you may face late fees, penalties, and negative entries on your credit report.
Also, make sure you contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your debt management plan.
Make sure the organizations payment schedule allows your debts to be paid before they are due each month. Paying on time will help you avoid late fees and additional penalties. Call each of your creditors on the first of every month to make sure the agency has paid them on time. Remember, you are ultimately responsible for your finances and debt pay-off.