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

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Written by Attorney John Coble.  
Updated January 3, 2020

Summary

The rest of this guide will focus on the different phases of setting up and maintaining an Illinois debt management plan. Then, we will look at some other debt-relief options.

In 1832, Abraham Lincoln and a partner bought a small general store in New Salem, Illinois. When the business failed, Lincoln lost everything he had. His creditors seized the last things he owned: his survey equipment and his horse. It took Lincoln years to finally resolve these debts. Our modern bankruptcy laws didn’t exist when Lincoln's business failed. Had bankruptcy court been available, Lincoln would have been wise to file. If such a financial catastrophe can happen to Lincoln, it can happen to anyone.

Illinoisans from all walks of life face many financial threats. In Chicago, the residents face a high cost of living. Along our rivers and now even the lakefront at Lake Michigan, Illinoisans face the constant threat of floods. Such floods can devastate your finances. Illinois farmers are suffering through a trade war that is leaving them without income as crops rot in the fields. We are here to help you find the best solution for you.

One possible debt solution is an Illinois debt management plan (DMP) that combines your total debts into a single monthly payment. The combined debts are most often unsecured debts such as credit card debt and medical bills. An Illinois DMP is a repayment plan that your credit counseling agency negotiates with your creditors. You make a single monthly payment to your credit counseling firm and the counseling agency pays the creditors. The credit counseling firm is able to provide you with one lower monthly payment than the combined amount of the payments on the debt you include. This is possible because the credit counseling agency negotiates a lower interest rate with each of your creditors. 

Having only one payment that pays all these credit card bills and medical debt is much easier than making a payment for each of these debts. For an Illinois debt management plan to work, you must be able to stick to a budget. Falling behind with a DMP can cause your lenders to add late fees to your DMP. Failing in a debt management program can leave you in a worse position than you were before starting your debt management program. For this reason, it’s a good idea for people with a gambling or shopping addiction to see an addiction counselor before attempting a DMP.

Is a DMP the Same as a Debt Consolidation?

With a debt consolidation, you take out a new loan and use it to pay off your unsecured debts. This combines your old debts into a single new debt. This is like an Illinois debt management plan except an Illinois DMP doesn't involve taking out a new loan. The debt consolidation loan is usually a personal loan, a credit card balance transfer, or home equity lines of credit.  One benefit of a debt consolidation is that unlike a DMP, there is no special notation attached to your credit report. Debt consolidations are better for people who still have good credit. A good credit score means you can get a favorable debt consolidation loan. For a consolidation to work, the interest rate on the loan must be less than the rates on the old loans.

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How to Become Debt Free With a DMP in Illinois

The rest of this guide will focus on the different phases of setting up and maintaining an Illinois debt management plan. Then, we will look at some other debt-relief options. 


Find a Credit Counseling Agency 

There are some important differences between a nonprofit credit counseling agency and a credit counseling firm that is in business to make a profit. These for-profit credit counseling firms are sometimes referred to as debt relief companies. Since the debt relief companies are in business to make a profit, they are more likely to put their interest in making a profit above providing the best debt solution for you. 

It’s a good idea to make sure your credit counseling agency is a member of the National Foundation for Credit Counseling (NFCC). The NFCC is the longest-serving nonprofit credit counseling organization in the US. The NFCC requires its members to be nonprofits. Another good idea is to always check any business’s rating with the Better Business Bureau before using that business. It’s especially important to check the Better Business Bureau rating with credit counseling, sometimes referred to as financial counseling, since they will be handling your money and your debt for the next three to five years. There are a few common-sense questions to ask to help you decide on a credit counseling firm. Ask the counseling agency for a brochure or other free promotional materials so you can learn more about the agency. If the counseling agency doesn't have such materials or wants to charge for it, that is a bad sign. Ask how the counselors are being compensated. If the counselor is being paid bonuses and incentives, this is a terrible sign. When a counselor is being compensated in this way, they are much more likely to steer you into the plan that makes the most money for the counselor as opposed to the plan that is the best for you.

What to Expect at Credit Counseling

For your initial credit counseling session, have recent paycheck stubs and bills for all lenders with you. The paycheck stubs will help your credit counselor determine your monthly income. The bills will show the counselor your minimum payments and the interest rates you're charged. Your credit counseling session could be in the office of the credit counseling firm, over the phone, or in an online meeting. The initial counseling session takes forty-five minutes to an hour. At the initial session, you will work with a certified counselor that will help you assess your income, expenses, and debts. You and your counselor will establish short and long term financial goals. Your counselor will recommend a plan that is best for your specific financial situation. This plan could be an Illinois debt management plan or it could be another debt solution. 

Making the Decision & Getting Started

It’s always a good idea to take the time you need to completely understand a process. You also need to take the time you need to feel comfortable with the plan. If the counseling agency puts pressure on you to make a specific choice, that isn't a good sign. Ask your credit counselor what the set-up fee and monthly fee is for the DMP. This is the fee to pay the credit counseling firm and doesn't reduce your debt balance. It’s a part of your monthly Illinois DMP payment. Ask about the credit counseling firm’s relationship with your particular lenders. This is important because credit counseling companies have working relationships with most lenders. These relationships grow out of the day to day negotiations for many different clients.

Before deciding to enter into an Illinois debt management plan, you need to feel comfortable that you and your family can handle the sacrifices that may be necessary to meet this budget and complete this plan.

Put Together Your Illinois Debt Management Plan

Your credit counselor will need more detailed information than they needed in the first session. They will need detailed bank account information and credit card information. It’s good if you can produce your credit card agreement. This agreement is the written terms that come in the same envelope from the credit card company as your credit card. Every time you charge the card, you agree to these terms. The counselor needs this agreement when negotiating changes to your terms that will be more favorable to you. An example of these more favorable terms would be lower interest rates. If you don't know where your credit card agreement is, you're not alone. Most people misplace these agreements. You can get copies of these agreements at the Consumer Financial Protection Bureau's Credit Card Agreement Database.  

The information you share with your counselor is confidential. Only after you have authorized the credit counseling company to negotiate an Illinois debt management plan for you and the counselor contacts your lenders for negotiations, will the lenders know that you are attempting an Illinois DMP. It’s important to do a final review with your counselor to make sure everything is correct before the credit counselor starts negotiating on your behalf. Make sure the due date works for you. Make sure you have included all your expenses in your budget. 

Begin Payments

It’s important to make all your Illinois debt management plan payments on time if not early. Make sure to set your DMP due date on a date when other large payments aren’t due. This makes it easier to make your DMP payments. Take the early months of your Illinois DMP to get into the habit of tracking your budget and living within your budget. When your DMP first starts, it will have a negative impact on your credit score. This is because in a DMP your lenders close your accounts and now you have less available credit. Also, lenders often put a DMP notation on your credit report. As you make Illinois DMP payments and your balances go down, your credit score increases. Having a good credit score will make it easier to get new credit in the future.

Make sure to let your credit counselor knows if you have any changes to your monthly expenses or monthly income. Such changes may cause your counselor to renegotiate with your lenders. Failing to notify your counselor of such changes could cause your DMP to fail when your counselor could have saved it. 

How to Stay Current With Your Illinois Debt Management Plan

Set aside a part of your monthly budget for expected expenses that don't arise monthly. Such irregular expenses would include quarterly insurance payments. Also, keep an emergency fund for unexpected expenses, such as accidentally dropping your phone in a lake. Make sure you have money set aside for these expected expenses and emergencies before spending on shopping and entertainment. A good way to keep track of your spending and stay on budget is to use an online personal finance program such as Mint.

If you have enough cash on hand for your emergency fund and enough to cover known future expenses, make extra payments on your Illinois DMP. It doesn't hurt to get ahead on your DMP. Being ahead may be helpful should an emergency expense occur in the future. 

We can't emphasize enough that if an emergency expense arises that could make it difficult to maintain your Illinois DMP, let your credit counselor know. Besides being able to renegotiate with your lenders, the counselor may have a solution to your emergency that you haven't thought of. Remember, your counselors deal with such issues every day.

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Illinois Debt Consolidation 

Illinois debt consolidations are where you combine your debts into one loan. This is like a DMP but a debt consolidation uses a loan instead of a counselor to consolidate your debts. Debt consolidations are a good route to take if your credit score is good enough to get a loan large enough to pay off all your debts at an interest rate more favorable than your old debts. Debt consolidations can be dangerous because you still have old credit cards to use. Using these credit card accounts will increase your higher-interest credit card debt. Using these cards defeats the purpose of your debt solution.

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Illinois Debt Settlement 

An Illinois debt settlement is when you settle your debt with your lenders for less than the full amount owed. Debt settlements do hurt your credit. Debt settlements only make sense if you have enough money to make large lump-sum debt payments. Debt settlements aren’t a good idea if you have good credit since you could use a debt consolidation loan to pay off your debts at more favorable terms if you have good credit. Debt settlements aren't easy. Your creditors don’t have to settle with you. If you use a company to settle your debts, there is a risk because some of these companies aren't trustworthy.

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Illinois Bankruptcy 

An Illinois bankruptcy is a way of using the courts to end your debt struggles. Bankruptcy eliminates most of your unsecured debts. Bankruptcy doesn't eliminate student loans and most taxes. Contrary to popular belief, most people lose nothing by filing for bankruptcy. Bankruptcy is the solution to use when the other solutions won't work for you. We provide a way for you to file your own free bankruptcy in cases that don't need an attorney. If your case does need an attorney, we can help you find a qualified attorney in your area.

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