Getting Out of Debt
While many of our clients do choose to pursue a debt management plan (DMP), it's far from the only way to get out of debt. Our counselors will review your financial health, including your budget and what resource you have available to pay off your debt, and help you evaluate your options to determine what may be your best course of action.Talk to a Counselor
Is a DMP right for you?
One of your debt relief options may be a DMP, or debt management program, managed by Consumer Debt Counselors. If you are having trouble paying your current bills, a DMP allows you to negotiate a new payment plan with your existing creditors. Some advantages of a debt management program may include:
- Payments that work with your budget.
- Lower interest rates and/or lower payments.
- No more collections calls.
- No more over-limit or late fees.
- Bringing your account current.
- Consolidating debts into one simple monthly payment.
- Financial education to help you rebuild your finances successfully.
What to Expect During a DMP
If you choose to enroll in a DMP, your existing lines of credit will be frozen in exchange for the lower interest rates and/or payments that the plan offers. Consumer Debt Counselors keeps all participation confidential and we do not notify any credit reporting bureau of your participation in a debt management plan. Your credit counselor can help you assess whether changes in your credit utilization will impact your credit score based on your personal situation.
Most DMP are five year plans to get out of debt, but the timeline depends on your total debt and your ability to pay it down. If you are ever in a position to pay extra money towards your DMP, it will help you pay your creditors faster. During the repayment period, your counselor will help you learn key money management skills so that you can rebuild your financial footing on solid ground after you complete your debt management program.
Other Ways to Get Out of Debt
Debt consolidation involves taking out a new loan to pay off your existing debts. It can streamline your payments, and it may allow you to get a lower interest rate or lower payment than what you're currently paying.
Debt consolidation will not fix underlying money management problems. If you consolidate your debt and then run up your original lines of credit again, you can be in a much worse situation. One of our certified credit counselors can provide a no-cost assessment of your finances to help you determine whether consolidation is the right option for you.
DIY programs are not impossible, but they do require discipline and organization. If you decide to get out of debt on your own, here are a few tips:
- Make and stick to a budget. Track where your money goes each month, eliminate expenses where you can and put everything you can towards paying down your debt.
- Try to reduce your interest rates. If you have a good payment history, your credit card companies may be willing to work with you.
- Inquire about hardship programs. Many creditors have internal hardship programs for customers who are struggling with debt. These may, for example, freeze your line of credit and lower your interest payment. Be sure to understand the terms of any program that you sign up for and be aware that, by admitting that you are having trouble meeting your debt obligations, you may jeopardize your available credit with that institution.
A certified credit counselor may be able to give you more personalized guidance. There is never any commitment or cost to receive financial counseling from our team of certified counselors.
Debt settlement is potentially the riskiest option to reduce debt. Instead of paying the full amount of the debt over however long the debt's repayment period may be, a debt settlement offers a percentage of the amount owed in exchange for settling the debt on the spot.
Debt settlement is harmful to your credit score, which can affect your ability to get loans, new lines of credit, approval for an apartment and more. In some cases it may be the best option. A certified credit counselor can help you assess your ongoing income to see whether a less severe resolution is available.
While you can choose to try to negotiate with your creditors yourself, many people go through debt settlement companies, which is where the risk comes in. In addition to the burden of choosing a reputable company to work with, you also have to pay the settlement company for a set period of time before the company will even begin to negotiate with your creditors. They want the security of your payment up front. In the meantime, your creditors are not receiving payment and may be unwilling to negotiate with the settlement company even after the funds have been collected.
A failed debt settlement plan can leave you in a much worse place than you were when you started the process.
Bankruptcy is the most drastic debt reduction option, but in rare cases bankruptcy may be the best option for you. A certified credit counselor can help you develop a budget to see whether bankruptcy can be avoided.
Bankruptcy will negatively impact your credit score. This can affect your ability to get loans, new lines of credit, approval for an apartment and more.
If you do decide to pursue a bankruptcy, be sure to consult a reputable bankruptcy attorney.