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How to Become Debt Free With a Debt Management Plan in

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In a Nutshell

The rest of this guide covers debt management plans in more detail. We will look at some alternative debt solutions in case a debt management plan isn’t the best solution for you.

Written by Attorney John Coble.  
Updated January 3, 2020


If you are struggling to pay your bills, you are not alone. Hawaii Business Magazine reports that half of the population of Hawaii is struggling to get by. This is despite the fact that in 2018, Hawaii has the lowest unemployment rate in the nation. We don’t have to tell you what the problem is. You know it. It is the high cost of living. CNBC lists Hawaii as the state with the highest cost of living. The price for a half-gallon of milk in Hawaii is almost twice as much as in America’s tenth most expensive state; New Jersey. The average power bill in Hawaii is more than twice as costly as New Jersey. Many Hawaiians are working two or more jobs and are still struggling to get by. The last thing you need is the added expense of excessive debt. We are here to help you with any challenges related to your bills. 

A Hawaii debt management plan (DMP) is a consolidation of your debts that uses a credit counseling agency to combine your debts into a single monthly payment instead of a loan. Note that credit counseling is sometimes called financial counseling. These counselors are trained experts in personal finance. With a Hawaii debt management plan, a repayment plan is set up to pay off the debts that you include. A Hawaii DMP is a good way to consolidate your debt when your credit score, sometimes referred to as FICO score is too low to get a favorable debt consolidation loan. 

With a DMP, you will be in a worse position than before you started if you default on your DMP. For this reason, a debt management program is not a good choice for someone who has a gambling or shopping addiction. Defaulting on a DMP can result in a higher interest rate and late fees.

Is a DMP the Same as a Debt Consolidation?

In a debt consolidation that isn't a DMP, a personal loan is used to combine your debt into one payment. Using a loan to consolidate your debt is best for those who have a higher credit score because they can get a more favorable loan. For those whose credit score is too low to get a lower interest rate that will result in lower monthly payments, a debt consolidation isn’t a good idea. One benefit of a Hawaii debt consolidation  is that you don't get a special notation on your credit report like with a debt management plan or bankruptcy.

When you use a loan to pay off your unsecured debts such as credit card bills, these paid-off credit cards can now be used to get into more credit card debt. Using this available credit prevents the debt consolidation from decreasing your debt. Your debt to available credit ratio is a key factor in determining your credit score. It is advisable to not use more than 30% of your available credit. If you use these paid-off credit cards, you will be damaging your debt reduction plan and you will also be using a higher percentage of your available credit. This will hurt your credit. Having to make credit card payments on new credit, even if you're just making the minimum payment, can cause you to miss a payment on your consolidation loan. The payments on a consolidation loan are large since it’s the combination of your prior debts. If you miss a payment, it is hard to catch up again.

How to Become Debt-Free With a DMP in Hawaii

The rest of this guide covers debt management plans in more detail. We will look at some alternative debt solutions in case a debt management plan isn’t the best solution for you.


Find a Credit Counseling Agency

A for-profit credit counseling firm is sometimes referred to as a debt relief company. Debt relief companies have a profit motive. This profit motive can cause a debt relief company to put their interests above your interests. A nonprofit credit counseling agency has no such motivation to put their interests above your interests. To make sure you are dealing with a reputable nonprofit agency, see if they are a member of the National Foundation for Credit Counseling (NFCC). The NFCC requires that its member agencies follow certain guidelines to protect their clients. If you want to do some background checking before deciding on an agency, do a search on the Better Business Bureau's website to see the rating of the agency. 

While credit counseling should always be free, the agency may charge a fee for some services like a Hawaii debt management plan. If you can't afford to pay the fee, ask if they waive fees in extreme cases. Most reputable credit counseling organizations will waive the fees. If you think you can't pay the fee, the credit counseling agency will determine if you are eligible for a fee waiver.

All counseling organizations aren’t the same. Some agencies may offer credit counseling, debt management plans, bankruptcy counseling, student loan counseling, foreclosure counseling and more. Other agencies may only offer credit counseling and debt management plans. Some agencies may only do telephone or online counseling sessions. Other agencies may offer you a choice of online, telephone, or in-person counseling sessions. Figure out what works best for you and find an agency that offers these options.

What to Expect at Credit Counseling

For your initial counseling session, you will need to have documentation available to give a general overview of your monthly expenses, debt payments, and monthly income. Some of the most important debts to cover are unsecured debts such as credit card debts and medical bills. These documents would include bank account statements, pay stubs, and bills. These initial sessions take forty-five minutes to an hour. All information you provide to your credit counselor is confidential. Your creditors aren't involved at this point. After assessing your income, expenses, and debts, your counselor will recommend a debt solution. Your counselor will design this solution for your specific financial situation. They may recommend a Hawaii DMP or they may recommend another option.

Making the Decision & Getting Started

There are some questions to ask your counselor before choosing a Hawaii debt management plan. You will want to know what the set-up fee and the monthly fee will be for your debt management program. These fees will only pay for the counseling agency and will not reduce your debts. You need to ask if the credit counselor gets a commission or another incentive for advising you to choose one debt relief option over another. If your counselor does receive incentives to “sell” you on a particular plan, you need to find another counselor. It's important to know about the relationship the agency has with your creditors. 

The most important question is a question you need to ask yourself. Do you feel comfortable that you will be able to make the sacrifices that may be necessary to stay on budget?

Put Together Your Hawaii Debt Management Plan

To set up your Hawaii debt management plan, your credit counselor will need more detailed information than you provided in your initial session. The counseling agency will need detailed bank account information and credit card account information. Your counselor will need the credit card agreement for all your credit cards. The counselor needs these agreements when negotiating with credit card companies. The counselor will usually get this agreement from the Consumer Financial Protection Bureau's Credit Card Agreement Database. The creditors do get a say in your debt management plan. Their say occurs when the creditors negotiate with your counseling agency. In most cases, the credit counseling firm has a stronger hand than the creditors. This is because you always have the option to file for bankruptcy and then the creditors will get little or nothing. The creditors know this and they are usually ready to make a reasonable deal with the counseling agency.  

Ask your credit counselor about how often your payments will be due for the debt management plan. It is a good idea to set these payments up to make a payment on each payday. This way, part of each paycheck will go toward your monthly payment. You could set up an automatic bank payment for each of your paydays. 

Begin Payments

Make sure that you and your credit counselor are on the same page about when your Hawaii DMP payments are due. For that matter, if you are unclear about anything, discuss it with your counselor. The creditors for the debts that you include in your Hawaii DMP will close your accounts. This will have a negative impact on your credit score because your available credit will decrease. As the balances go down on the debts included in your Hawaii DMP, your credit score will increase. The credit card companies may put a note on your credit report that says you are in a DMP. This will have little effect on your credit score.

How to Stay Current With Your Hawaii Debt Management Plan 

Make sure to let your credit counselor know if there are any changes in your monthly expenses or income.  It is important that the counselor know that if you have an emergency need for money that may affect your ability to make your Hawaii debt management plan payments. Either of these issues could lead to your counselor renegotiating with your creditors.

It is a good idea to track your expenses while you are in a Hawaii DMP. Tracking spending is necessary to keep you on budget. Mint is a good online tool to help you stay on budget. You will get monthly reports from your credit counseling agency about your Hawaii DMP. Pay close attention to these reports. 

Talk to your counselor about not only your ultimate goal but also the milestones to set while moving toward your goal. It’s important to reward yourself when you reach a milestone. To emphasize how important this is, consider if you aren’t a runner, you’re overweight, and you decide you are going to run ten miles today. The odds are that you're not going to make it. Your chances of making that ten-mile run increases if you walk for two minutes after every ten minutes of running. The same idea works with paying off your debt. You need to reward yourself after reaching every milestone. Let's say that you have a $10,000.00 debt that you are paying off. You could set your milestones at $1,000.00 increments. With each $1,000.00 decrease in your total balance, you could treat yourself to dinner at your favorite restaurant or a movie. This reward for reaching your debt milestones will have the same effect as the walks in the ten-mile run story. These rewards will increase your chance of succeeding with your Hawaii debt management plan. Of course, you don't want to spend too much  for this reward and you don't want it to cause you to miss a payment or reduce your emergency funds by much.

Hawaii Debt Consolidation 

A debt management plan isn't for everyone. If your credit is good enough to get a favorable interest rate on a debt consolidation loan, this may be your better choice. The only differences between a Hawaii debt consolidation and a debt management plan are that a consolidation requires a loan and doesn't need a credit counseling firm. Other than these differences, both a debt management plan and a debt consolidation loan combine all your debts into one payment and get a lower interest rate.

Hawaii Debt Settlement 

A Hawaii debt settlement is when creditors agree to settle your debt for less than the full amount owed. These settlements don't make sense for most people. For a debt settlement to work, you need to have a manageable number of creditors and you need enough cash to make lump-sum payments to settle your debt. To eliminate your total debt, you will need to reach a settlement with each lender. A settlement will hurt your credit and is only a good idea if your credit is already bad. One of the least desirable parts of a debt settlement is that the IRS considers the difference in what you settled for and the full loan balance to be income. You may have to pay taxes on this income even though you received no money.

Hawaii Bankruptcy 

If other debt solutions won't work for you and you're having a problem putting food on the table for your family, a Hawaii bankruptcy may be your best choice. We offer a way for you to file a Chapter 7 bankruptcy in the cases where an attorney isn't needed. If you need an attorney, we can recommend a reputable attorney in your area.

Bankruptcy will harm your credit at first. There will be a bankruptcy notation on your credit report for ten years. This may sound bad, but the fact is that within a year of filing a Chapter 7 bankruptcy most people have better credit than they had before filing for bankruptcy.



Written By:

Attorney John Coble

LinkedIn

John Coble has practiced as both a CPA and an Attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Attorney John Coble

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