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How to Become Debt Free With a Debt Management Plan in Alabama

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In a Nutshell

Getting started with your own Alabama debt management plan is easy and takes less time than many other forms of debt consolidation. We will look at each step you can take on your way to becoming debt-free with a debt management plan in Alabama.

Written by the Upsolve Team
Updated January 2, 2020

This article is designed to give you information on debt management plans (“DMP”). How they work. How they differ from other forms of debt consolidation. Whether a DMP is right for you. And how you can go about combining your credit card debts into an affordable and convenient Alabama debt management plan.

Alabama Debt Management Plans are a well-known form of debt consolidation that allows individuals to combine all of their credit card debts into one single monthly payment. This payment is made to a non-profit credit counseling agency which in turn pays the credit card companies. If completed successfully the debt management plan pays off all of your total debt in four to five years. Because you don’t have to have good credit to qualify for an Alabama debt management plan, the biggest benefit of an Alabama debt management plan is that it allows an individual who doesn’t qualify for a debt consolidation loan to benefit from consolidating all of their credit card debts into one payment. Another benefit is that the credit counseling agency that sets up the plan negotiates on your behalf to get lower interest rates on all of the unsecured debts included in the plan. As a result, not only do you benefit from no longer having to keep track of multiple payments, but it puts you on a clear trajectory for being debt-free. Finally, the impact on your FICO credit score is likely to be less than the impact of filing bankruptcy even though your credit score will initially go down as a result of your lines of credit being closed as part of the Alabama DMP. But as the debt is paid off your credit score will gradually increase again. An Alabama debt management plan is typically best for credit card debt, though some credit counseling agencies include medical bills and have established relationships with medical providers. It is also not really a solution for payday loans and secured loans such as auto loans. Finally, depending on your plan, you can’t use credit cards while in the plan and no new credit is allowed to be opened.  

How much does it cost?

Once your debt management plan is set-up and approved, you should only pay a small one-time set-up fee and a small monthly maintenance fee. Avoid any credit counseling organization that requires an application fee, membership fee, upfront fee or per-creditor fee.

Is a Debt Management Plan the Same as Debt Consolidation?

A debt management plan is a form of debt consolidation. It is one of the most readily available and simplest forms of debt relief for a consumer to take advantage of. Debt consolidation involves consolidating all of your unsecured debts into one debt with a single, lower monthly payment. For most people, this will primarily be credit card debt. However, depending on the type of debt consolidation, such as a debt consolidation loan, it can include medical bills, student loans, car loans or other high-interest-rate personal loans. This is accomplished by either taking out a new loan or opening a new line of credit and using it to pay off all your other unsecured debt. In an Alabama debt management plan, which is a form of debt consolidation, a non-profit credit counseling agency negotiates on your behalf with all of your unsecured creditors to create a repayment plan that allows you to make one, smaller, monthly payment on all the debt. Often with a lower interest rate.

What are Some Examples of Non-DMP Debt Consolidation?

Other forms of debt consolidation besides debt management programs include  personal loans, credit card balance transfers, a mortgage refinance or a home equity line of credit. Depending on your financial situation, a certified credit counselor can explain all of your debt relief options.

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How to Become Debt-Free with a DMP in Alabama

Getting started with your own Alabama debt management plan is easy and takes less time than many other forms of debt consolidation. We will look at each step you can take on your way to becoming debt-free with a debt management plan in Alabama.

Find a Credit Counseling Agency

Your first step in becoming debt-free with your own Alabama DMP is to get in touch with a reputable non-profit credit counseling agency. Using a non-profit credit counseling agency, as opposed to a for-profit debt management company, is important because non-profit credit counseling agencies have to abide by national standards of accreditation. These standards include transparency and full and fair disclosure of every aspect of the Alabama DMP. Finally, non-profit credit counseling is provided free of charge through a number of accredited nonprofit credit counseling agencies such as Money Management International, CESI or GreenPath. For help finding an accredited non-profit credit counseling agency in your area feel free to contact Upsolve.

Additionally, you can visit the National Foundation for Credit Counseling (NFCC ) or the Council On Accreditation (COA) to verify the accreditation of any non-profit credit counseling agency. COA does the accrediting, while the NFCC is the largest and longest-serving nonprofit financial counseling organization in the United States. Its member agencies all have to be NFCC certified.

What to Expect at Credit Counseling

You will begin your credit counseling by meeting with a trained and certified credit counselor. Working with your counselor they will help you:

  • Assess your personal finances, including income, expenses, and debts;

  • Establish financial goals for both the short-term and the long-term;

  • Review your credit report; and

  • Develop an action plan to achieve those goals. 

You will leave each session with a budget and an action plan. When applicable, your counselor will also provide educational materials and referrals to additional resources and services. Each person’s financial situation is unique and so each counseling session is tailored to meet your specific needs. But typically a full counseling session lasts 45-60 minutes.

Making the Decision & Getting Started

Even if you have only a few minutes to spare, if you are looking for help getting out of debt and putting an end to annoying collection calls, simply set up an initial credit counseling session and start the conversation. You are under no obligation after meeting with a counselor to start a debt management program. Even if the counselor says you qualify for or are a good candidate for an Alabama DMP, you have the right to take your time to think about it before making a decision. Starting a debt management plan is not an easy decision to make. You are making a long term commitment to yourself to be debt-free. Before making up your mind some of the questions you may want to ask yourself include:

  • Are you already behind on your credit card payments? Or other debt payments?

  • How do you feel about the budget? Do you think you can stick to it? 

  •  Are you and your family ready to make this commitment? If the plan fails because you miss a payment, you will likely be worse off than before due to penalties, default interest rates kicking back in, etc.

  • Have you considered other debt solutions? Have you spoken to a bankruptcy attorney about whether bankruptcy might be a better alternative for you? 

Put Together Your Alabama Debt Management Plan

Assuming you have made up your mind to be debt-free. Let’s discuss what you will need to put together a successful Alabama debt management plan with your non-profit credit counselor. In order to create your debt management plan and get it agreed to by your creditors, your counselor will need more specific information than you may have given them during your credit counseling session. This information includes your bank account information, your detailed credit card account information and the amount and frequency of your pay. Your credit card statements should contain most of the information you need such as your current balance, minimum monthly payment, annual interest rate, due date, late fees, over-the-limit fees, and other monthly fees assessed on your accounts. You may also be able to obtain most of this by obtaining a free copy of your annual credit report

My credit counselor says I need to provide my cardholder agreement for all of my credit cards. What does that mean and how I can get them?

Your cardholder agreement is the agreement you entered into with all of your creditors when you obtained credit from them. Your counselor will need this information to make sure they have all the relevant details about your credit card account when they contact your creditors. You should have received a printed copy of your cardholder agreement when you received your credit card. If you opted for electronic notification, then an electronic copy of the agreement should have been emailed to you as a PDF or is available to download online. If you have lost your printed copy or no longer have access to your account online, you can get a current example of your cardholder agreement here

Begin Payments

Perhaps the most important step in your Alabama DMP is making your first payment. Most debt management plans require that you make your first payment on time and in the full amount required. If you do not, your creditors may not agree to the plan. If you have not done so already, make sure you know the date your first payment is due and the amount of the payment. If either is unclear, talk to your counselor. One good way to make sure your payments are made on time and that you have the money needed to make the full payment is to make your payments early. Use the early weeks of your Alabama DMP to really set up a process for following your new budget and making sure all day to day expenses are getting paid every month in addition to your debt management plan payment.

How will I know if my creditors accept the DMP? 

Your counselor will let you know when your creditors have agreed to your Alabama debt management plan. Once you’ve signed off on the plan and are starting to make payments, your credit counseling agency will contact your creditors to set up the plan with them and get an agreement in place. Most reputable credit counseling agencies have established relationships with many banks/lenders, so they should have an idea of approximately how long your process will take. While you wait, continue making your monthly debt management plan payment and stay in communication with your credit counselor. If you want to get per-creditor updates, talk to your credit counselor about this, so all of you’re on the same page. 

How to Stay Current With Your Alabama Debt Management Plan

It can’t be stressed enough how important it is that you stay current with your Alabama debt management plan and make all the required payments on time and in the amount required. Here a few ways to make doing so easier. One important factor in determining whether you’re able to make your debt management plan payment on time every month is the due date. Try to set up a due date when no other large expenses need to be paid. In addition, avoid setting your due date on the first of the month when expenses like your rent or mortgage payment become due. Finally, make sure to keep your credit counselor in the loop if anything changes in your monthly expenses/income and you need to change your due date. 

Set up a system to set aside funds that are budgeted to cover an expected one-time expense. 

As part of your budget, you should have accounted for expected one-time expenses that become due every year or more often. Some examples of these types of expenses include vehicle registration, school tuition, quarterly car insurance or taxes. In addition to including them in your budget, set up a system to set aside funds to pay these types of expenses before they become due. You might open a separate bank account and have the funds directly deposited into that account from your paycheck every month. You could also pre-pay them and have the merchant apply the funds when they become due. Or you could set aside extra income like a bonus or tax refund to pay them when they become due.

Alabama Debt Consolidation 

A debt consolidation involves taking out a new loan or opening a new line of credit to pay off all of your existing debt. Such debt consolidation loans are often available only if you have good or excellent credit and can get favorable terms on the new consolidation loan. 

Alabama Debt Settlement

Alabama debt settlement is another way to deal with debt. Debt settlement” is a partial repayment of the total debt . You must have money available to make a lump sum payment to your creditors and you must have a manageable number of creditors to negotiate with. Many creditors  will not agree to settle with you until your accounts are severely delinquent or charged off. And there are tax consequences if they do settle with you, as the amount of the debt that is forgiven will be reported to the IRS.

Alabama Bankruptcy

If you are a good candidate for it, debt consolidation is a worthwhile means of becoming debt-free over time. However, if you have lost your job or are medically unable to work, and need immediate debt relief then you should not hesitate to ask your credit counseling agency about an Alabama bankruptcy. If bankruptcy is the way to go, and you can’t afford to hire an attorney, Upsolve can help. 

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

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