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

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In a Nutshell

When followed faithfully and administered by a reputable non-profit credit counseling agency, an Arkansas debt management plan is a proven method of getting out of debt over time. All of your creditors get paid everything they are owed. Meaning the negative impact to your FICO credit score after successfully completing an Arkansas debt management plan is often less than what it would have been had you done nothing. Below we will look at the steps you can take to put together your own Arkansas DMP.

Written by the Upsolve Team
Updated January 3, 2020

You may have never heard the term “debt management plan” but you have probably heard of debt consolidation. What a lot of consumers do not know is that debt consolidation actually has many forms. One of which is an Arkansas debt management plan. In this article, we will discuss Arkansas debt management plans in detail, how they work, how they differ from other forms of debt consolidation and whether one is right for you.

A debt management plan is a form of debt consolidation used by many accredited, non-profit credit counseling agencies to help consumers become debt-free. An Arkansas debt management plan combines all of your credit card debt into one account with one single monthly payment. As part of the debt management plan, you usually get lower interest rates on the debts and have your over-the-limit and late fees waived. You then make one payment each month to the credit counseling agency you’re working with, which they forward to the credit card companies. 

The biggest benefit of an Arkansas debt management plan is the convenience and relief it offers by only having to make one monthly payment each month to pay all your unsecured debts. However, in most instances when your non-profit credit counseling agency gets your plan approved, they will also be able to obtain lower interest rates on the debt included in the plan and get over-the-limit and late fees waived. This means you end up with a lower monthly payment than the total you were paying each month before you started the Arkansas DMP. 

Is a Debt Management Plan the Same as Debt Consolidation?

Yes. Because a debt management plan is a form of debt consolidation. Debt consolidation occurs when you combine all of your debts into one account. You can also combine all your monthly payments into one single monthly payment. Debt consolidation can occur in several different forms: a debt consolidation loan, a balance transfer, a home equity line of credit and a debt management plan. All of them are considered a viable form of debt relief.

No matter what form of debt consolidation you choose, any reputable credit counselor will tell you that debt consolidation is not without its risks. Some of these risks are the same whether you opt for a debt consolidation loan or a debt management program. Other risks are unique to one or the other. For example, if you opt for a debt consolidation loan, there is the risk of achieving no actual savings if the interest rates on your current debts are comparable to that on your debt consolidation loan. There is also the risk of inadvertently getting into more debt by using the line of credit again that becomes available after the consolidation loan is taken out. On the other hand, if you opt for a debt management program, there is the risk of being scammed if you don’t choose a reputable non-profit credit counseling agency to set up and administer your debt management plan. There is also the risk of your monthly payment increasing significantly and not being able to get back on track if you fail to follow the plan and miss payments. 

How to Become Debt-Free with a DMP in Arkansas

When followed faithfully and administered by a reputable non-profit credit counseling agency, an Arkansas debt management plan is a proven method of getting out of debt over time. All of your creditors get paid everything they are owed. Meaning the negative impact to your FICO credit score after successfully completing an Arkansas debt management plan is often less than what it would have been had you done nothing. Below we will look at the steps you can take to put together your own Arkansas DMP.

Find a Credit Counseling Agency

The most important step in becoming debt-free with an Arkansas debt management plan is finding a reputable, accredited, NFCC certified non-profit credit counseling agency. If you have been behind on your bills for some time you have probably already received a lot of offers in the mail advertising repayment plans and debt solutions that resemble credit counseling and debt consolidation. These offers can often be confusing and very misleading. And many for-profit companies promise debt relief options that they cannot deliver. 

Accredited non-profit credit counseling agencies have to abide by certain quality standards set by credit counseling organizations like the Council On Accreditation (COA) and the National Foundation of Credit Counseling (NFCC) that grant their accreditation. These standards are designed to ensure that the credit counseling agency deals with the public in an open, honest and professional manner. Foremost among these standards is that all non-profit credit counseling agencies that are accredited provide initial credit counseling free of charge. If you can’t find any accredited non-profit credit counseling agencies locally, there are several nationally accredited non-profit credit counseling agencies you can contact such as Money Management International, CESI or GreenPath. For additional help finding an accredited non-profit credit counseling agency in your area feel free to contact Upsolve.

What to Expect at Credit Counseling

According to the Arkansas Attorney General’s Consumer Protection Division,” [a] debt management plan alone is not credit counseling, and debt management plans are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation and has offered you customized advice on managing your money.” Accordingly, the purpose of your initial credit counseling session is to put together a “customized” debt management plan tailored to your specific circumstances. During this session, you will share information with your certified credit counselor on your current financial situation. The counselor will then help you put together a monthly budget. And using this budget you will prepare a customized Arkansas debt management plan to address your debt.

 Note that your initial credit counseling session is only with the staff of the non-profit credit counseling agency you have chosen to work with. The session is completely confidential and none of the information you disclose is shared with your creditors or reported to credit bureaus.

Making the Decision & Getting Started

One other purpose served by taking part in an initial credit counseling session is the incentive it will give you to make the decision to get started. Sharing your financial problems with a trained, certified credit counselor and coming up with a plan of action to address those problems will give you the confidence you need to get started. But if you’re still undecided, you can ask yourself some honest questions to see if an Arkansas debt management plan is truly right for you.

Additional questions to ask yourself before making a decision

  • How do you feel about the budget? The budget you put together with your credit counselor should empower you with the knowledge that you can get out of debt. If you feel however that you can’t follow it, you should discuss why with your credit counselor before starting your Arkansas DMP.

  • Are you and your family ready to make this commitment? Getting out of debt with an Arkansas DMP is a long term commitment. Your plan will likely extend from three to five years. During this period of time, it is extremely important that you make every payment when due. 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, and creditors backing out.

  • Have you considered all the options? If you are unable to pay your bills at all because you have little or no income, then an Arkansas DMP is probably not a good option for you. Have you spoken to a bankruptcy attorney about whether bankruptcy might be a better alternative for you? 

  • Have all the fees and costs of the plan been disclosed to you? 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 fee. Avoid any credit counseling organization that requires an application fee, membership fee, upfront fee or per-creditor fee.

Put Together Your Arkansas Debt Management Plan

If you have made it this far and are still convinced an Arkansas debt management plan can put you back on the path to financial peace of mind, let’s talk about putting together your Arkansas debt management plan.

First of all, you are going to need some documents. You may not have brought any documents other than recent bills and a paycheck stub or two with you to your initial credit counseling session. And that is ok. Your credit counseling session was an informal conversation between you and your credit counselor about your financial circumstances and goals. Now, however, in order to put together a debt management plan customized to get you out of debt month-by-month, you will need to provide some specifics. Some of the information or documents you will need to provide to your credit counselor at this stage include:

  • Credit card statements showing your current balances, minimum payments, due dates, penalties and fees owed on your credit card accounts;

  • Your cardholder agreements disclosing the terms and conditions on all your credit card debt;

  • Your bank accounts;

  • You pay statements showing your monthly income and the frequency with which you get paid;

  • Your credit report listing all of your current creditors and the status of your accounts;

  • Information pertaining to other secured and unsecured debts you pay every month like payday loans, student loans, auto loans, medical bills or personal loans in order to complete your budget;

  • Other information on your personal finances requested by your credit counselor to negotiate with your creditors.

Begin Payments

Once your Arkansas DMP is in place and all of your creditors have signed off on it, you will be ready to begin making payments. If you have not done so already, make sure you know when you should stop paying your individual creditors separately and begin making one payment to your credit counseling agency. It is important that once you enter into your Arkansas debt management plan you make your monthly payments on time and if possible, early. As we discussed earlier, if you begin to miss payments or fail to make your payments on time you will more than likely find yourself in the worst situation than before.

Initially, your credit score will suffer. As creditors close your lines of credit as part of the debt management plan, your credit score will take an initial hit due to less available credit. But as you make your monthly payments on time your balances will go down and your credit score will gradually increase again. Some creditors may also indicate on your credit report that you are taking part in a debt management plan but that should not affect your credit score.

How to Stay Current With Your Arkansas Debt Management Plan

Just like you used your budget to put together your Arkansas debt management plan, you should use your budget to put together a plan to stay current with your Arkansas debt management plan. Ideally, you have already put aside funds, as part of your budget, for emergencies and large irregular expenses that could cause you to miss a payment. But if an emergency does arise that is outside of your budget or an expense arises that was too large to set aside for it, communicate with your credit counselor. They are a resource for you and may have a recommendation specific to your set of circumstances. As a last resort, before breaking your debt management plan, use a credit card to pay for an emergency and then set up a mini-payment plan to get the new credit paid off as quickly as possible. But prior to doing so make sure you’re not violating the terms of your debt management plan by talking to your counselor first. Finally, talk to your credit counselor about ways you can use unexpected or additional income from such things as tax refunds, overtime or end of the year bonuses to ensure you keep your Arkansas DMP current.

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Arkansas Debt Consolidation

If you have good or excellent credit an Arkansas debt consolidation loan is another form of debt consolidation. Unlike a debt management plan, you will actually have to incur new debt to consolidate your debts with a debt consolidation loan. Unlike a debt management plan, however, you can consolidate secured debt, like a car loan, with a debt consolidation loan. Provided you obtain a lower interest rate on the new loan you may also end up with a lower monthly payment. Unlike a debt management plan, however, most credit counseling agencies do not offer debt consolidation loans. And you may not be able to get approved for a loan large enough to consolidate your total debt which limits its effectiveness in helping you to become debt-free.

Arkansas Debt Settlement

Arkansas debt settlement is another form of debt relief often advocated by private debt settlement companies. But according to the Arkansas Attorney General debt settlement differs from credit counseling or debt management plans. With debt settlement, no regular periodic payments are made to your creditors. Rather, the debt settlement provider promises to negotiate a lump sum to resolve the debt at an amount less than you currently owe. This can be very risky and have a long term negative impact on your credit report and, in turn, your ability to get credit.” Moreover, except for non-profit organizations and a few others, it is illegal in Arkansas to engage in the business of “debt adjustment.” 

Arkansas Bankruptcy 

If you are still not convinced that you could benefit from an Arkansas debt management plan and feel entering into one would only make your situation worse, an Arkansas bankruptcy may be the best choice for you. Depending on your income, your assets and whether you own your home, there are several types of consumer bankruptcies available to provide you legal protection from your creditors. If bankruptcy is the way to go, and you can’t afford to hire an attorney, Upsolve may be able to help for free.

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The Upsolve Team

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