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Debt Management
Case Studies

Meagan is from Burbank, California and in October 2008 she owed $69,061 from 6 different credit cards and other unsecure debts, with interest rates from 13% to 30%. Her monthly minimum credit debt payment was $2,097, and she was on track to take 19 years to pay off her debt. Her FICO? score was 498.

After providing Meagan with free credit counseling, a debt management plan was proposed with a new monthly consolidated payment of $1,673, at an average interest rate of 16%. Total time to pay off her debts: five years. 13 months after enrolling in the plan, her credit score had risen to 572.

Meagan benefited from concessions offered by her creditors which lowered her interest rates to an average of 16% and her monthly payment by $424. More importantly, this new consolidated lower monthly payment will enable her to pay off the entire $69,061 in 5 years. In addition, Meagan?s credit score increased 74 points in just one year now that she is current on all of her debts and made all her payments on time each month.

Note: This is an actual Springboard DMP client. The client?s name and possibly location has been changed to protect their privacy. Read More Debt Management Case Studies >>

Debt Management Plans

A debt payoff plan intended to help consumers safely climb back out of debt

A debt management plan, or DMP, is a tool that credit counselors use to assist consumers like you with credit debt management.

When providing debt management services we you are counseled to tackle your debts with a concrete plan, based upon the non-profit credit counseling agency?s years of experience in providing debt relief counseling and advice.

The debt management plan, or DMP, guides a consumer toward financial freedom with consolidated monthly debt payments, reduced interest rates and/or monthly payments, and more.

How does a DMP work?

Your certified credit counselor knows in advance what your creditors will do to help you succeed in paying off your debt, and will negotiate certain concessions for you as well as create a comprehensive debt management plan on the spot.

Some creditors allow a smaller monthly payment, reduce interest rates, waive fees, re-age past due accounts, etc. You are assisted in evaluating all of your debts to come up with a new monthly payment plan ? sometimes smaller than your minimum payments were before. These payments are part of a debt management program that will guide you toward paying off all of your unsecured credit debts within five years or less.

You then make one consolidated payment to your certified agency each month, which is then passed on to all of your creditors. Your payment is processed and distributed monthly to keep all of your credit accounts current; benefitting your credit score. This is different than what some debt settlement negotiators do, which is to hold on to your payments and not paying your credit accounts in hopes of settling in the future.

DMP Pros & Cons

Pro: You receive free, nonprofit credit counseling from a certified counselor. Typically a COA accredited member of the NFCC, where counselors provide you with advice and assistance to help make your life on the DMP easier. You also have access to a multitude of free financial education materials to help you make ends meet and learn the ins and outs of credit reports, avoiding identity theft, and more.

Con: You are advised to give up all of your credit cards while you are on the plan. If you enroll in our debt management plan, you agree to close your credit accounts and refrain from taking on new unsecured credit lines as long as you are on the plan. You will be counseled you on ways to make ends meet on a cash basis and be provided with free financial education to make your transition from using credit to paying cash easier.

Pro:There is no obligation. You can work with your counselor in a free session to create your own plan to repay your debts. You?ll only enroll in a debt management program if you truly need it. Only modest fees are charged to you for enrolling in a DMP. These fees are limited by law and sometimes waived in the event of a significant financial hardship. The creditors that are negotiated with contribute to your counseling agency for assisting in your debt resolution. There contribution allows the agency?s counseling to be free of charge and the DMP fees to be low. The creditors offer you concessions (lower interest, waived fees, etc.) due to your raised education, budgeting and agreements to manage and pay off debt.

After you?re enrolled in a DMP, you are free to leave the plan at any time if you feel you can manage your debts on your own; many people enroll in a SMP during a period of unemployment or other hardship, then switch to a self-administered plan when their situation improves. Those who enroll in a DMP sign an agreement, not a contract, and there are no penalties or obligations to prevent you from taking over your own debt repayment plan.

Con: There is usually no reduction in the principal of the debts you owe. Through a debt management plan, you will repay all of your outstanding debts. Your fees and interest may be reduced to make your monthly payments more affordable. Because of this, a DMP won?t have the negative credit or tax consequences that are associated with a traditional debt settlement.

Pro: If you make your payments on time, then your creditors receive every payment on time. With some kinds of debt settlements, the negotiator will tell you to stop making your debt payment. Just know that by not making payments you will destroy your credit rating, and this may incite your creditors to pursue legal action against you.

DMP Vs Debt Settlement

Credit Report: When you begin a Debt Management Plan, your credit lines are closed and you agreed to not use credit while on the plan. Because of the way FICO calculates credit scores, your credit score can potentially go down temporarily at the start of the plan. Because you have just agreed not to use credit while on the plan, you will be denied if you apply for new unsecured (credit card) credit. As soon as you complete or leave the DMP, you are again eligible for new credit. Your credit report contains an annotation that you are on a DMP, however it is not calculated into your FICO score and is only viewed by underwriters when applying for new credit. This DMP annotation is not a negative mark, so don't expect that to harm your credit score now or in the future.

In the long run, if you make your DMP payments on time, your score will increase. After a few years of making consistent debt payments on your plan, you will have demonstrated a good payment history along with credit lines paid down from their maximums and your score will benefit. Read the Real Life Client Examples to see how a DMP can affect someone's credit score.  

Tax Consequences: Any amount you save with your creditors in a debt settlement will be reported to the IRS via Form 1099-C as taxable income. Often, debt settlement negotiators do not tell their clients this, and the resulting tax bill comes as quite a shock. Debt management plans come with no such negative tax consequences.

Counseling assistance: The difference between for-profit settlement agencies and certified, non-profit agencies is in the free counseling and financial education to everyone who wants it, nationwide. The people who enroll in a DMP with a non-profit counseling agency are given all the assistance and advice needed to help them make ends meet and work toward a stable financial foundation.

Fees: Debt settlement fees are typically significant, totaling a percentage of your outstanding debt amount. In addition, if these fees are collected up front, it could take many month s for you to pay the settlement agency their fees and then save up for your settlement amount. On the other hand, certified non-profit counseling and education services are free, with the debt management services coming with limited fees ? often times less than $50 to enroll.

Creating a win-win situation: With a Debt Management Plan your non-profit agency acts as a neutral third party to help everyone succeed. You end up debt free in less than five years, and your creditors are repaid after making some concessions. With debt settlements, you are pitted against the creditor in a win-lose negotiation. The antagonism this creates between you and your creditor can leave your credit devastated and can even trigger a lawsuit by your creditor.

Paid in full: When you are done with a debt management plan, your debts are paid in full and you now have a positive track record on your credit report. That?s financial freedom. With settlements, sometimes creditors will sell the unpaid portion of your debt to a collection agency, which will haunt you for years to come. Any account settled for less than the amount owed will be reflected as such on your credit report for seven years.

A legacy of trust: When choosing an agency to assist you in debt relief look for trust indicators. Are they a 501(c)(3) nonprofit organization with many years of experience? Do they undergo rigorous, regular audits to maintain COA accreditation and certification by HUD to provide housing counseling? Are they members in good standing with the Better Business Bureau? Look into their nonprofit mission and legacy of service to the community to be assured that they do not employ misleading marketing and sales tactics.

How does one ?apply? for a DMP?

The most important part of your debt relief assistance is always the free counseling, financial analysis and education provided to anyone on demand, anywhere in the country.

Only after a free and comprehensive counseling session will you be evaluated to see if you are a good candidate for a debt management plan. Those who are interested and are good candidates for a debt management plan will be able to enroll at the end of their free credit counseling session.

There is no obligation and no charge for credit counseling, so don?t hesitate. Call (800) 294-3896 and speak to a certified consumer credit counselors today or Schedule an Appointment and you will be contacted in the next 24 hours.

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