A debt management plan is a carefully constructed payment schedule that consolidates credit card and other unsecured debts into one affordable monthly payment. Borrowers in a debt management program agree to stop using credit cards in exchange for lower interest rates and more affordable monthly payments. Nonprofit debt management programs enable borrowers to repay their debt in 3-5 years.
Features of a Debt Management Plan
- Borrowers make one consolidated monthly payment to a third party, typically a credit counseling agency, instead of individual payments to all of their creditors.
- Average interest rates between 8-12%
- 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.
- You will identify the root cause of your debt.
- You will complete a household budget.
- We’ll pull a snapshot of your credit report to review your balances and monthly payment requirements.
- We’ll provide you with a recommendation, based on your income and debt.
- If you qualify for the debt management program, you can enroll immediately.
- 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.
Alternative Debt Programs
Debt management is one pay to deal with credit card debt, but there are other options which may work better for you depending on your situation.
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 costs include attorney fees (typically 10-20% of amount settled) and taxes owed on forgiven debt. Debt settlement negatively impacts credit for several years.
With debt settlement, your attorney will ask you to stop making payments to your creditors 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. If the creditor accepts the agreement, the debt is considered settled. Read more about debt management vs. debt settlement.
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.
DIY 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.
Debt Management 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?
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.
- NA, ND Debt Management Plan. Retrieved from https://www.nfcc.org/creditcounseling/counseling_02.cfm
- Tim. (2015, April) American Household Credit Card Debt Statistics: 2015. Retrieved from http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/
- NA, (2012, March 23) How does credit counseling affect my FICO score? http://myfico.custhelp.com/app/answers/detail/a_id/70/kw/Does%20participating%20in%20a%20debt%20management%20program%20affect%20my%20credit%20score%3F
- White, J. (2013, September 10) Settling accounts will hurt credit scores. Retrieved from http://www.experian.com/blogs/ask-experian/2013/09/10/settling-accounts-will-hurt-credit-scores/
- NA, ND Debt Repayment Calculator. Retrieved from https://www.creditkarma.com/calculators/debtrepayment