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

Find a Credit Counseling Agency

Your journey to becoming debt free in California begins with finding a reputable non-profit credit counseling organization. In California, all private debt management service providers, also known as “general proraters”, must be licensed to do business in California under the Check Sellers, Bill Payers and Proraters law. Presently there is only one licensed “general prorater” in the State of California.

Luckily, non-profit credit counseling organizations are exempt from the licensing requirement, provided they comply with California laws governing non-profit credit counseling organizations. A current list of non-profit credit counseling organizations authorized to assist consumers with a California debt management plan can be found here.

However, even though a non-profit credit counseling organization may be authorized to offer debt management services in California, that doesn’t mean it has been accredited. 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. There are several non-profit credit counseling agencies accredited by the NFCC that are authorized to offer debt management services in California, such as Money Management International, or the Consumer Education Services, Inc. (CESI).

What to Expect at Credit Counseling

Your initial credit counseling session will be a one-on-one financial counseling session between you and a certified credit counselor. Your creditors will not take part in the session and nothing you tell the counselor will be shared with the credit bureaus. The session will focus on you and your current financial situation, with an emphasis on putting together a monthly budget and identifying a debt management program that is best for you. The credit counselor will ask you about your income, your debts and the circumstances that may have led up to your financial problems. They may also offer to review your current credit report with you. Finally, the credit counselor will help you come up with a plan and a recommendation for becoming debt-free. Many credit counseling agencies offer the initial credit counseling session in-person, over-the-phone or online. Typically, you can do an online or telephone session 24 hours a day. To obtain an in-person session you will usually have to make an appointment.

Making the Decision & Getting Started

When you have completed your initial credit counseling session you are under no obligation to go forward with your credit counselor’s recommendation. In addition to the recommendation, you should also receive educational material explaining more about debt consolidation and a California DMP that you should read and review before making up your mind to get started. Some of the things you should consider before making up your mind include:

• Do you have additional questions that were not answered? If so, call your credit counselor and discuss them. Your questions should be welcomed and not excused or trivialized.

• Can you stick to the budget? The budget you put together with your credit counselor is a roadmap to becoming debt-free. If it is unrealistic, let your credit counselor know and start over.

• Have you considered all your options? Your credit counselor should have discussed several types of debt consolidation and debt relief programs with you. If you feel one is a better fit for you than what your credit counselor recommended, call them and let them know. They will usually be able to tell you why they recommended the debt relief options they did and why the option you are considering may not be a good fit for you.

• Do you understand all the set-up fees, monthly fees, and costs? You may or may not have discussed fees and costs at your initial credit counseling session since they will usually depend on what debt relief option you choose. But make sure you understand what fees and costs you will be responsible for if you go forward.

Put Together Your California Debt Management Plan

The first thing you and your credit counselor will do after you have made the decision to get started is to put together your California debt management plan. To do this your credit counselor will need several important documents. These documents may 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 the credit card companies.

Finally, you should also realize that unlike your initial credit counseling session, your creditors will be contacted to obtain their agreement to your California DMP. Your credit counselor may have to share certain of this information with your creditors in order to obtain their agreement to your California DMP. They will also use this information to negotiate more favorable terms for you like a lower interest rate, extended repayment terms, waived over-the-limit and late fees and sometimes even a reduction in principal. 

Begin Payments

Most California debt management plans will allow you to begin making payments into the plan before all of your creditors have agreed to it. This is in order to have the first payments for the plan fully funded when all your creditors do sign-on. But you have a right to know when you first payment is due, how much is due and what will be done with it. You should also find out when you can stop making payments to each of your creditors if you have not already done so.

But once you do begin making payments, it’s extremely important that you make all your payments on time, or even early, and you pay the full amount due. If you miss a payment or pay less than the amount due, your creditors may not agree to the plan at all or may withdraw their agreement after doing so.

How to Stay Current With Your California Debt Management Plan

Sticking to a California debt management plan that may extend over three to five years, not only requires discipline on your part but it also helps to be proactive. It is imperative that once you begin to make payments on our DMP that you stay current with all your payments. In order to make this more likely there are a few things you can do now to be prepared.

First, make sure the due date for your DMP does not conflict with any other large payments you have to make that month. Typically, this will be a car loan or mortgage payment. If you can’t move one of those dates, ask your credit counselor if you can move your DMP date. As a rule of thumb, try to avoid setting it for the first or last day of the month.

You should also plan for unexpected expenses and emergencies. If you did your budget correctly, you should have already allocated money to cover irregular expenses like annual car registration fees, quarterly insurance payments, tuition, and membership fees. But you should also plan for unexpected expenses like car or home repairs and emergencies like medical illnesses or natural disasters. If you have not, talk to your credit counselor.

Finally, think of ways you can reward yourself and create milestones to celebrate so you don’t have to wait until the very last payment on our DMP to feel as though you’ve accomplished something. Talk to your counselor about big milestones to mark in your monthly reports like paying off your first creditor, making your first six payments on time or reaching the halfway point in your plan.