If you’re struggling with high amounts of credit card, medical, or other unsecured debt, signing up for an online debt management program may offer a structured path to becoming debt-free. These programs help consolidate your debts and negotiate lower interest rates through a nationwide non-profit credit counseling agency.
In this blog post, we will look at how online debt management plans work, the pros and cons of weighing, the costs involved, and tips for choosing a reputable provider and successfully getting out of debt through the program.
How Do Online Debt Management Programs Work?
Online debt management provides convenient access to debt relief services over the phone and the Internet. Here is an overview of how these programs typically work:
- You’ll speak to a certified credit counselor who reviews your complete financial situation including income, regular bills, and all outstanding debts.
- The counselor uses this information to create a customized debt repayment plan that fits your budget. This sets up a single monthly payment to the agency.
- The agency contacts your creditors and works to get them to agree to concessions like reduced interest rates, waived fees, and lowered minimum payments. This helps more of your payment go to paying down the principal.
- You’ll make one payment per month to the agency and they disburse the appropriate funds to each of your creditors.
- The program lasts 3-5 years typically until all enrolled debts have been repaid in full through your ongoing monthly contributions.
- You get access to budgeting tools, educational resources, and counselor support over the phone or online throughout the program.
Am I Eligible for a Debt Management Plan?
To qualify for one of these programs, you’ll generally need:
- At least $10,000 in total unsecured debt like credit cards, medical bills, department store cards, etc. Loans for cars and homes don’t qualify.
- Steady income that covers your living expenses with 10-20% left over to dedicate to debt repayment in the program.
- The willingness to close all credit card and loan accounts while enrolled in the program.
- Time to complete required credit counselling sessions and personal finance education modules.
If you meet these criteria, a debt management plan may be able to help you tackle your debt load more aggressively.
The Pros of Online Debt Management
Signing up for an online debt management plan offers several potential benefits:
- Since the services are provided remotely, it makes it easy to fit into your schedule.
- Having set monthly payments takes the guesswork out of paying off debts.
- The interest rate reductions mean more of your payment goes to the principal owed.
- Easy to manage just one monthly payment to the agency.
- Late fees and over-limit fees can be waived as part of the program.
- Creditors agree not to send accounts to collections while enrolled.
- Support can be gotten from a credit counsellor throughout the program.
- Seeing debts decrease each month helps me stay motivated.
Potential Cons to Consider
However, there are also some potential drawbacks to note:
- Agencies charge $50-100 upfront to start a plan.
- Expect to pay $25-50 per month for the service.
- Closing all accounts may hurt credit utilization temporarily.
- Can’t tap credit cards in an emergency once enrolled.
- Creditors may still send past-due accounts before program enrollment to collections agencies.
- While credit score often rebounds after a couple of years in a program, it may decline initially.
For some, the pros of structure and interest savings outweigh these cons. Evaluate your situation.
What Are the Costs of Debt Management Plans?
There are a few different fees to expect if you enroll:
- Set up fee – One-time cost to establish a plan, typically $50-100.
- Monthly fee – Maintenance fee of around $25-50 you pay per month.
- Dedicated account fee – If funds need to be held in a dedicated account, maybe a monthly fee of $10-15.
In addition, you’ll need to budget 10-20% of your gross monthly income to dedicate to the monthly payment under the debt management plan. The exact amount depends on your specific debts and income.
Tips for Picking a Reputable Credit Counseling Provider
Look for an established, accredited non-profit agency when choosing where to set up a debt management plan:
- Search for companies accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
- Check the Better Business Bureau (BBB) for ratings, complaints, and reviews.
- Compare costs and terms offered by a few top-rated companies.
- Read experiences posted on the ConsumerFinance.gov consumer complaints database.
This research helps identify trustworthy agencies known for quality counseling and results.
What to Expect During the Enrollment Process
Once you pick a provider, here is a general timeline for getting started:
- Initial counseling call– Review your complete financial situation and debts. One-hour phone call typically.
- Gather documentation– Income verification, expense budget, debt listings, and account statements.
- Fill out the application– Formally apply with your personal info, budget, debts, and creditors.
- Sign agreement– Legally binding contract outlining terms of services.
- First payment– Send the initial monthly payment amount as determined by the counselor.
- Accounts contacted– The Agency starts contacting your creditors immediately to start negotiations.
- Ongoing access– Monitor your account dashboard, and reach counselors when needed.
Tips for Successfully Completing a Debt Management Program
Graduating from a debt management plan debt-free requires discipline:
- Make your new, lower-negotiated monthly payments consistently and on time.
- Stick closely to your assigned budget that aligns with the payment plan.
- Avoid taking on any new credit card or loan debts during enrollment – that defeats the purpose.
- Check-in with your counselor regularly for ongoing accountability and support.
- Review program statements monthly to stay on top of your progress as debts decrease.
- Recommit when you feel discouraged – it takes 3-5 years on average to complete most plans.
How It Compares to Other Debt Relief Options
Debt management plans aren’t the only option. Balance transfer cards and debt consolidation loans can also provide lower interest savings.
Balance transfer cards tend to offer 0% intro APRs for 12-18 months, but then standard rates apply. With debt consolidation loans, you must qualify and repayment terms are 3-5 years.
For high debt on multiple cards, debt management programs tend to offer the most comprehensive consolidated approach. Weigh the pros and cons of each method carefully for your situation.
Is a Debt Management Program Right for You?
If you have over $10k in unsecured debts and need a structured approach to paying it down over several years, enrolling in an online debt management plan may be beneficial. These programs can negotiate substantially lower interest rates while providing valuable counseling.
Just be sure to choose an established non-profit provider and commit to the 3-5 year process. Get informed about what’s involved so you know what to expect. Then develop the discipline to stick to the new payment plan and budget. Doing so will put you back in control of your finances over time.
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