Your debt counselor may recommend a debt management plan to help you to pay off your obligations if reducing your expenses and making more money are not possible. Many creditors offer special concessions to consumers who pay off their bills through a debt management plan. When you participate in a debt management plan, the counselor tries to negotiate smaller monthly payments with your creditors.
Creditors who participate with consumers in a debt management plan expect consumers not to incur additional debt while they are in their plans.
The counselor determines exactly how much you can afford to pay to your unsecured creditors each month in order to eliminate each debt over a three- to five-year period. Then the counselor contacts the creditors to find out if they will agree to let you pay the amounts you can afford. In some instances, the counselor may also ask the creditors for other concessions, such as lowering your interest rates and reducing or waiving any fees you may owe to them.
Beware of credit counseling agencies that spend little or no time evaluating your finances before advising you to enroll in a debt management plan or that ask you to begin paying on a debt management plan before your creditors have agreed to work with you.
If your unsecured creditors believe that giving you what you need is in their best interests, they will probably agree to the credit counselor’s proposal.
After the credit counselor has prepared your final debt management plan
Ask for a copy.
Do not sign it until you have read it carefully, understand everything in it, and are sure that you can live up to it.
Note any restrictions in the plan. It may prohibit you from taking on additional credit with your current creditors or applying for new credit while it is in effect. If you violate any aspect of your plan, you risk having it cancelled.
Verify that the plan says you will receive monthly updates on the status of your debt management plan, including confirmation that each of your creditors was paid according to the terms of the plan
When your plan is official, you pay your credit counselor the amount of money you have agreed to pay on your debts and the required monthly fee. In turn, the counselor pays your creditors.
Some creditors who agree to be part of your plan may report you as slow paying or as paying through a debt management plan, which will damage your credit history a little. However, statistics show that successfully completing a debt management plan actually increases your FICO score.