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

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In a Nutshell

If you think you would be a good candidate for a Colorado debt management plan, here’s a quick rundown of how to get started and what to look out for as you go through the process.

Written by the Upsolve Team
Updated January 3, 2020

If you reach a point where you can no longer pay your bills despite working full time and you are starting to receive collection calls about your missed payments, you may be a good candidate for a Colorado debt management plan.

A Colorado debt management plan is a mutual financial arrangement between you and your unsecured creditors where you combine all of your unsecured credit card debt, usually with a lower interest rate, into one monthly payment. Most Colorado debt management plans are arranged by non-profit credit counseling agencies that negotiate lower interest rates, extended repayment terms, and waived over-the-limit and late fees with your credit card companies, usually resulting in lower monthly payments. In exchange, you agree to make one monthly payment to the non-profit credit counseling agency every month that is forwarded to your creditors.

One of the benefits of a Colorado debt management plan is having a lower single monthly payment to make each month to pay all your unsecured debts. So you no longer have to keep track of multiple payments because one payment per month covers everything. It also puts you on a path to being debt-free while also paying all your debts back in full.

A Colorado debt management plan is not without its risks. Like any debt relief program, there is always the risk of being scammed if you don’t go with a reputable, accredited and licensed non-profit credit counseling agency. Your credit score will also initially suffer when enter a debt management program as your lines of credit are closed. But your credit score will usually go back up as you pay off the debts included in your plan. 

Is a Colorado Debt Management Plan the Same as Debt Consolidation?

Yes. A debt management plan is a form of debt consolidation. Debt consolidation involves combining all of your debt payments into one account. This results in one payment just like with a debt management program. However, non-DMP debt consolidation involves taking out one new large unsecured loan to pay off all your debts,  refinancing your mortgage to pull money out and pay off your debt, or. opening a home equity line of credit to consolidate your debts. Some are able to consolidate their debts or doing a balance transfer to a low interest credit card to pay off all other credit card balances.

None of these are without their risks. While taking out a new unsecured debt consolidation loan is probably the least risky of all these options, if you end up with a comparable rate of interest – or an even higher rate of interest, the benefit of a lower payment is lost. Because you will pay more for the debt in the long run than you would have if you had not consolidated. Refinancing your mortgage, on the other hand, puts more debt on your home and extends the time it will take to pay off your home. And home equity lines of credit actually expose you to the risk of losing your home if you default on the loan, just like a traditional mortgage does.

How to Become Debt Free with a DMP in Colorado

If you think you would be a good candidate for a Colorado debt management plan, here’s a quick rundown of how to get started and what to look out for as you go through the process.

Find a Credit Counseling Agency

Finding a reputable non-profit debt management agency is perhaps the most important step in becoming debt-free with a Colorado DMP. In Colorado, like most states, “[a]ny person or organization that provides, offers to provide, or agrees to provide Debt-Management services directly or through others must register as a Debt-Management Services Provider.” You can verify the credit counseling agency you are considering is licensed and view its disciplinary history, if any, here.

Even if the credit counseling organization is licensed, you should also verify that you are dealing with a non-profit organization that is accredited by a national accreditation organization like the NFCC. 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 locate any accredited non-profit credit counseling agencies locally, there are several nationally accredited non-profit credit counseling agencies you can contact such as Consumer Education Services Incorporated (CESI ) or GreenPath, both of which are licensed in the State of Colorado. 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

What to expect at your initial credit counseling session depends on whether you do the session in-person, over-the-phone or online. Most credit counseling agencies offer all three. If you do the session in-person, you will meet with a certified credit counselor and go over your financial situation with them. They will discuss your income, your debts and your overall financial circumstances that may have led to your financial difficulties. They may also offer to review your FICO credit score and credit report with you. At the end of the session they will provide you with a personal recommendation of debt solutions that would be best for you. An over-the-phone session might be with a live credit counselor or it may be automated. If it is with a live credit counselor, it will be conducted pretty much as an in-person session. If it is automated, or online, then you will be answering a series of questions about your financial situation and be given a recommendation at the end of the session. No matter which method you prefer, your initial credit counseling session should always be free.

Making the Decision & Getting Started

Once you have taken advantage of your free initial credit counseling, you should be in a better position to know if a Colorado debt management plan is right for you. Before making the decision and getting started ask yourself a few questions:

  • Did you get all your questions answered? If not, write down the questions you still have and contact your credit counselor again.

  • Were you provided with free educational material to read and review? The answer to this should be yes. And you should always take the time to read all the material pertaining to the plan you are choosing before getting started.

  • Have you discussed your debt management repayment plan with your family? Starting a Colorado DMP is a long term commitment. Your plan will likely extend from three to five years. Your family should understand and support the fact that you will not be able to run up new debt or open new credit during this time.

  • Were all the monthly fees, set-up fees and costs disclosed to you? If not, ask for the specific fees and costs that are part of the debt relief program you want to go with. Also let your credit counselor know if you feel you can’t afford some of the fees and costs. If you qualify, many credit counseling agencies will waive them if you ask.

Put Together Your Colorado Debt Management Plan

It is now time to work out the specific details of your Colorado debt management plan. In order to do this, your credit counselor will need some important documents showing how much you owe, who you owe, what you pay on what you owe and how much you have to make that payment every month. While much of this will be the same information you discussed at your initial credit counseling session, you will now need to document that information so that it can be incorporated into your personalized Colorado debt management plan. Some of the documents you may need include:

  • Credit card statements showing your current balances, interest rates, 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;

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

  • Your credit report showing your total debt, 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

After you have put your Colorado debt management plan together, your credit counselor should tell you when to start making your payments. Make sure you know when your first payment is due, how much the payment is and who to make the payment out to. Also, make sure you know when to stop paying your creditors directly, if you haven’t already done so. If all of your creditors have not agreed to your Colorado DMP when your first payment due, you may have to keep paying some of them until they do. Don’t be reluctant to ask your credit counselor which creditors have agreed to your DMP and which have not. In the meantime, you should continue to make all your payments on time and in the full amount due, if possible. Missing payments or not paying the full amount agreed to can put you in a worse situation than you were in before.

Once you begin your Colorado DMP you should also expect to see a decrease in your credit score. This is because your creditors will close your open accounts with them when they accept your Colorado DMP, and this will result in less available credit. However, as you make your payments and the balance in your DMP goes down, your credit score should gradually increase again.

How to Stay Current With Your Colorado Debt Management Plan

Once you have made your first payment on your Colorado DMP, it is just as important to stay current with your future payments. You can perform a few safety checks once your DMP is underway to make sure you are poised for success. First of all, make sure your monthly payment is due on a date when no other large monthly expenses come due, like your car loan or mortgage payment. If it does fall on the same date, see if your credit counselor can change it. Second, set up a system to keep your credit counselor in the loop if anything changes with your monthly expenses/income. For example, if part of your pay includes commissions and you know a slow period of the year is coming up, tell your credit counselor and see if you can pay extra before it arrives. Finally, prepare for unexpected expenses and emergencies. Ideally, your budget allows you to set aside something every month to cover these. If it does not, set aside unexpected income from things like commissions, end of year bonuses, gifts, and tax refunds to cover them.

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Colorado Debt Consolidation 

For individuals with good credit, a Colorado debt consolidation loan is a good alternative to a Colorado debt management plan. A Colorado debt consolidation loan is typically an unsecured personal loan that is used to pay off other outstanding debt. Unlike a debt management program that typically only consolidates unsecured debt like credit card bills, you can pay off any kind of debt with a debt consolidation loan. However, getting approved for a debt consolidation loan does not guarantee the loan will be offered with a lower rate than you are currently paying on your debts. This is because most lenders will charge a higher interest rate to compensate them for letting you transfer the risk of defaulting on your loans from other unsecured creditors to them.

Colorado Debt settlement

Colorado debt settlement involves negotiating with your creditors to settle your outstanding debt with them for less than you owe. Colorado debt settlement is not a form of debt consolidation and is often solicited by third-party debt settlement firms. Most consumer protection agencies caution individuals about entering into debt settlement agreements that promise results they can’t deliver. Unlike debt settlement, a Colorado debt management plan, pays your outstanding debt in full and is implemented with the cooperation of your creditors.

Colorado Bankruptcy

Colorado bankruptcy is another form of debt relief available to individuals who can no longer pay their bills. Unlike debt consolidation, bankruptcy legally eliminates your debts without the need to repay any of them in most instances. In addition, you do not need your creditors’ consent to file a Colorado bankruptcy and you can file whether or not you have any income. Bankruptcy counseling is available through the same non-profit credit counseling agency you consulted about debt consolidation. If not, Upsolve can give you more information on getting a fresh start with a Colorado bankruptcy.

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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