Should notifying credit card companies of debt management plan enrollment
Americans are carrying record levels of credit card debt right now, with the average cardholder owing about $8,000 in total . While carrying this type of debt is never ideal, especially at today’s elevated rates , the recent uptick in credit card debt makes quite a bit of sense. Sticky inflation has caused the prices of essentials to skyrocket, and because budgets aren’t stretching nearly as far as they should, it has become common for cash-strapped Americans to rely on their credit cards to get by.
And, as the credit card debt issues compound, more people are searching for solutions to getting rid of what they owe, ideally without wrecking their credit . There are a few ways to do that, but debt management , in particular, may be worth considering. Unlike other types of debt relief, debt management doesn’t require you to borrow more money or default on what you owe. Rather, the goal is to help you pay off your debt by streamlining the payment process and working with your creditors to lower your interest rates and fees.
But while debt management programs have helped millions of Americans get rid of their debt , they aren’t the universal solution that some assume them to be. These programs are designed for people in particular financial circumstances, and that means there are qualification requirements that determine whether you’re a good fit. What exactly are the eligibility rules, though?
Debt management requirements to meet if you want to enroll
While program requirements can vary, in general, you’ll need to meet the following to take advantage of what debt management can offer:
Requirement 1: Steady, sufficient income
The foundation of any successful debt management plan is your ability to make consistent monthly payments. The credit counseling agency you work with on this type of plan will need to see that you have a reliable income source that can cover both your essential living expenses and your proposed debt management payment.
During the initial consultation, the credit counselor will review your income from all sources, whether that’s employment, Social Security , disability benefits or other regular payments. They’re not just looking at the total amount, though. They want to see stability and predictability. For example, someone with a steady $3,000 monthly income might be a better candidate than someone earning $4,000 but with highly variable or seasonal work.
The credit counselor will also calculate your debt-to-income ratio and determine whether you’ll have enough left over after essential expenses to make meaningful progress on your debts. If your proposed payment would be so small that it would take decades to pay off your balances, they might recommend exploring other debt relief options instead.
Requirement 2: Manageable unsecured debt within program limits
Debt management plans are specifically designed for unsecured debts like credit cards, personal loans and medical bills. You generally can’t include secured debts like mortgages, car loans or student loans. Many agencies also have both minimum and maximum debt limits for enrollment.
The minimum threshold varies from one program to the next, but it ensures that debt management makes financial sense for both you and the agency. For very small debt amounts, the monthly fees might outweigh the benefits. On the other hand, if you owe more than $50,000 to $100,000 in unsecured debt (limits vary by agency), you might need to explore alternatives like debt forgiveness or bankruptcy .
The outcomes also tend to be better for clients who have multiple creditors. The goal is to roll multiple monthly debt obligations into one payment while lowering your fees and interest charges, so if you only owe money on one credit card, you might get the same results without the monthly fees by working with the card issuer directly instead.
Requirement 3: Willingness to commit to the program rules
Perhaps the most challenging requirement is the commitment aspect. Enrolling in debt management isn’t just about making the required monthly payments. It requires you to make fundamental changes to your financial habits and lifestyle, too.
For example, most programs require you to close the credit accounts included in your plan, which means that you can’t continue to use those cards while you’re paying them off. Many agencies also ask you to avoid taking on any new debt during the program, at least without their approval. This can feel restrictive, especially if you’re used to relying on credit for emergencies or unexpected expenses.
You’ll also need to commit to the financial counseling and education components. Most reputable agencies require participants to complete budgeting workshops or check in regularly with counselors to track their progress and address any challenges that arise.
The bottom line
Debt management can be a powerful tool for the right person, but if you don’t meet the criteria, don’t lose hope. Consider working on building a stable income, paying down some debt independently or exploring other debt relief options . The most important thing isn’t qualifying for debt management. It’s finding a solution that matches your specific financial situation that sets you up for long-term success.
Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
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Debt Management Program FAQs
Our nonprofit Debt Management Program (DMP) is a plan to help you pay your debts and regain financial stability. It helps you repay debts in less time than on your own. Alliance works with your creditors to reduce your interest rates, eliminate late- and over-limit fees , and re-age accounts–which would bring your accounts to ‘current’ from ‘past-due’ status. You will stop receiving collection calls in short order.
2. Bill Consolidation Loan and Debt Management Program
Like a bill consolidation loan , you get the convenience of a single monthly payment, a single point of contact, a lower monthly payment, and lower interest charges each month. Unlike a bill consolidation loan , your existing accounts are modified with lower interest rates, frequently bringing the rates down from a range of 20 to 30% to single digit rates, usually 5 to 9%, and sometimes as low as 0%. Also, your repayment rate will drop, meaning, instead of paying 4% of your balance back each month, it will be closer to 2%, which means your monthly payment is reduced significantly. Also, those late- and over-limit fees will stop once you complete your initial payments on the program, saving you more each month.
3. How does the Debt Management Program work?
Our counselors seek to understand your concerns, your personal circumstances and situation, and your financial goals. Next they collect and evaluate income, expenses, assets and liabilities, analyze your financials, then help you with spending plan development. Then we review your options available to help you reach your goals.
When you select the option of a Debt Management Program (DMP), we prepare you for what to expect in your personal situation with your particular creditors . We then prepare and send an agreement to you. Once you return the agreement and have a date selected to start the DMP, we contact your creditors and submit proposals for your lower interest and repayment rates. Then when your first payment is due, we process it and distribute it to your creditors . Thereafter, you make one monthly payment to Alliance, and we continue to disburse your payments to your creditors . A counselor will contact you occasionally to update you on your program status, check on your statements from the creditors , and solicit feedback. As each account is paid off, we will work with you to determine the best strategy going forward. As a client, you can access detailed information about your DMP anytime by accessing our website or our customer information line.
4. What is the cost of a Debt Management Plan?
Counseling sessions are performed at no charge. For a Debt Management Program (DMP), there is typically a one-time enrollment/set-up charge, and a monthly fee to for the cost of administering your DMP. There are no deposits, no retention of first payment , and no closeout fee . You may be eligible for a fee waiver under our Fee Policy Guidelines.
5. Do all unsecured debts need to be included on a Debt Management Plan?
Not absolutely, but there are conditions. The purpose of a Debt Management Plan is to help you get out of debt . To achieve this, it is important that no further debt is incurred while are on the program. Exceptions are made for justifiable reasons, so when arranging to start your program, discuss your situation with your counselor. Creditors have requirements, and they will monitor the activity on your credit report while on the program. If you use credit cards or department store cards, your creditors could disqualify you from the program and you will lose the benefits they have provided to you.
6. How many accounts can I put on the Debt Management Program?
There is no limit to the amount of credit card , department store cards, personal loans , medical bills and collection accounts that may be placed on the Debt Management Program . Creditors are very willing to extend benefits when they know you are earnestly trying to repay their debt . Placing all credit cards on the program demonstrates an earnest commitment to repaying one’s debts . Our experience tells us that the most successful participants of our program include all of their debts , removing temptation to use credit instead of cash, and develop the habit of competence with a realistic spending plan .
7. Will my credit accounts be closed when I start a DMP?
Nearly all creditors will close accounts when you enter a debt management plan . If you decide to enroll in a DMP, we suggest you contact creditors first to request accounts closed “at consumer request”, as this has a credit report advantage for you in the future.
8. Can I open new lines of credit while enrolled in a DMP?
We recommend that clients do not open new lines of credit until you complete the program. Creditors may discontinue benefits if you do.
Vehicle and housing loans are unique and may be necessary while enrolled in the program. Our certified counselors will work with lenders to assist with such loans .
9. Can secured loans, student loans and IRS payments be included in a DMP?
Mortgages, vehicle loans and other secured loan payments calculated in a personal budget, but they paid through the program.
Student loans and IRS payment can be included in the program at the scheduled fixed payment amount, as no discounts or reductions are available via a DMP.
10. What is the average length of time to pay off debt?
It varies, but the average DMP length is 32 months, some paying off early, and others exciting the program early because their financial situation has stabilized.
The original DMP payments are designed to lower the monthly amount to help you deal with a distressed financial situation, and the payoff target is 60 months.
Many clients accelerate their payments during the later months to maximize their benefit or as it suits his or her individual needs.
11. When will the collection calls stop?
Once you have established a payment schedule and the creditors are receiving payments on-time, the phone calls should stop. It does take time before all the creditors realize you are enrolled. If you continue to receive calls from your creditors , contact customer service and we will inform them of your enrollment.
12. How do I start?
Simply complete the online counseling form or call a counselor directly. To assist in expediting either counseling process, it could help to have your most recent creditor statements available for quick and easy reference.
13. Is my information submitted through this web site secure?
Yes, our organization is committed to maintaining your privacy and confidentiality. See our privacy policy. We take numerous measures to protect your information and related data.
14. What happens when I submit my information online?
A counselor will review your information, and analyze your financials, prepare a draft spending plan , and options for your review , and then contact you to discuss details and present options to resolve your concerns.
15. What type of ongoing customer support can I expect?
Normally a Program Counselor will contact you soon after enrollment to update you on details of proposal status with the creditors , review guidelines, and answer any questions . You can always access detailed information about your DMP anytime by accessing the client account login or our customer information line. Should problems arise, contact a Program Counselor as soon as possible, by calling or using a form to the right.
16. Do I continue to pay creditors during the period before the DMP begins?
Possibly. If at all possible, we recommend that you keep all accounts current or continue making payments until the debt management agreement is officially activated.
17. How long is a counseling session?
A debt counseling session typically lasts 45-90 minutes; however, you can call and speak to a counselor—even with only a few minutes. Our hours are Monday – Thursday 8AM to 10PM Friday 8AM to 8PM, and Saturday 9AM to 5PM. Additionally, you can submit questions on the form to the right.
18. What do I do if I do not have all of my creditor information?
While it is best to have the most recent data, we can a copy of your credit file and import the information we need directly into our software. Once you have authorized the access, the balances and account numbers of your credit accounts will be placed into your credit counseling account for review and analysis as you work with a counselor. This is a “soft pull” and does not affect your credit score. Note that sometimes credit report data can be outdated or incorrect.
19. How many creditors do you work with?
Alliance has a well-established network with the creditors . With 19+ years in the debt management profession, we have developed strong relationships with all of our country’s major credit issuers. We work with all unsecured creditors including doctors, hospitals, attorneys, finance companies, and collection agencies .
20. When will I receive benefits from my creditors?
Most creditors start granting benefits upon acceptance of your proposals. There are some creditors that wait until you make your first three consecutive payments on-time before offering full benefits. That’s why it is important to carefully review your monthly creditor statements and report to us the progress. Once benefits are granted, they will be reflected on your statement.
21. Can I pay more than my scheduled monthly payments?
Yes, you can pay more than the minimum required in your Debt Management Program, but never less. If you plan to pay more than the minimum payment on a one-time-only basis, please contact the Client Services Department, and make it clear of the one-time-only basis. If you plan to pay more on a regular basis, make that clear, so you won’t have to make a call each month.
https://www.cbsnews.com/news/debt-management-program-enrollment-requirements/https://www.knowdebt.org/services/debt-management/debt-management-frequently-asked-questions/
