How to Become Debt Free With a Debt Management Plan in Indiana
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If you’re interested in an Indiana Debt Management plan, you’ll have to take a few steps to get started. Read the following overview before you start so you can be prepared and successful.
Written by the Upsolve Team.
Updated January 3, 2020
Debt management plans are one form of debt relief in Indiana. Unlike debt consolidation, debt management plans are done through a credit counseling agency. The credit counseling agency administers the plan. You make one monthly payment. The funds then go to pay off creditors until all your debt is paid in full. Credit counseling agencies have the ability to negotiate with your creditors to get lower interest rates. It’s great for individuals who may not have the credit scores to open up new lines of credit to be used for consolidation. Even though your score may initially drop as your accounts are closed, using an Indiana Debt Management plan increases your credit score as your total debt goes down. Debt settlement is another way of handling overwhelming debt. Unlike Indiana DMPs, debt settlements could have a much more significant negative impact on your credit. They don’t pay back your total debt, but only a negotiated part of it.
Indiana Debt management plans work best with credit card debt and certain medical bills. They aren't a solution for payday loans and secured loans like auto loans. You should also have a decent grasp of your financial situation before starting. You’ll have one large payment to make each month instead of several small ones. You also have to avoid taking out new debt or using your credit cards while in an Indiana Debt Management Plan (DMP). If you need to take out new credit while in an Indiana DMP, you should contact your credit counseling agency to avoid problems. If you don’t have your spending under control, you may need to start with creating and maintaining a budget first. Local factors may impact whether you should use an Indiana DMP. If you’re in Northwest Indiana, your wages may not be keeping up with the higher cost of living. If you are in an industrial area that has been experiencing a lot of layoffs, you may not be able to commit to a several-year plan.
Is a DMP the Same as a Debt Consolidation?
Debt consolidation is a way to take all your debts and put them into one monthly payment. You can do this by taking out a debt consolidation loan, using a credit card balance transfer, or opening a home equity line of credit. An Indiana Debt Management plan is a form of debt consolidation. An Indiana DMP uses a nonprofit credit counseling agency as a middleman. The agency makes payments to your creditors based on an agreed-upon plan. You will need a good FICO credit score to be able to take out a debt consolidation loan. You want to get loan terms that have lower interest rates than the debts you are trying to consolidate. If you use a credit card balance transfer, the promotional interest rate period may be short. If you can’t finish making all the payments in that time, you’ll be stuck with a higher interest rate. Take extra caution to avoid debt consolidation scams. Do your research before committing. You’ll also want to be sure you can afford the monthly payments. Falling behind on one larger payment will be harder to make up than smaller credit card debt payments.
How to Become Debt Free with a DMP in Indiana
If you’re interested in an Indiana Debt Management plan, you’ll have to take a few steps to get started. Read the following overview before you start so you can be prepared and successful.
Find a Credit Counseling Agency
You’ll want to start by finding a good credit counseling agency that helps individuals in Indiana. Look for a nonprofit credit counseling agency. Nonprofit organizations are accredited and must meet certain standards. Verify that a credit counseling agency is accredited by checking with NFCC or COA. The National Foundation for Credit Counseling (NFCC) is the largest and longest-serving nonprofit financial counseling organization in the United States. NFCC member agencies have to be certified. COA is the organization that does the accrediting of counseling agencies. You may also want to look up these agencies with the Indiana Attorney General's office or the Better Business Bureau. Once you find an agency, find out about the costs. The initial credit counseling session is always free. Find out what the agency does if you can’t afford their fees. Also, ask how your credit counselor is compensated. You don’t want the counselor to be pushy because they get a bonus if you sign up. Ask the credit counseling agency for free informational materials before signing up. Lastly, find a credit counseling agency that works for you. If you prefer working over the telephone, make sure they offer those services. You may even prefer an agency with online access. Ask the agency how they conduct business before you start.
What to Expect at Credit Counseling
Once you pick a credit counseling agency that works for you, prepare for your first credit counseling session. Gather your recent paycheck stubs or income statements. If possible, collect credit card bills that show minimum monthly payments and interest rates. You can pull your credit report to get some of those details. Finally, write down your other recurring monthly expenses, especially if you’ll talk to a credit counselor over the phone. You’ll be reviewing your income, expenses, and debts. Everything you discuss will be confidential and your creditors will not be notified of the counseling session. The initial session will take about 45-60 minutes. You and the credit counselor will review your finances, establish financial goals, and develop an action plan to achieve those goals. At the end of the session, the credit counseling agency will give you their recommendations. A debt management program can be one of those recommendations, if the credit counselor thinks you’re a good candidate.
Making the Decision & Getting Started
Just because the credit counselor recommends an Indiana debt management plan doesn’t mean you have to jump in right away. Take the time to think about it before making a decision. Don’t let the credit counselor pressure you into making a choice. That could be a big sign about the credit counseling agency. Ask about set-up and monthly fees. You can even ask if Indiana laws limit the fee the provider can charge. Find out if your counselor has an incentive to recommend one option over another. You also want to find out if your credit counseling agency has prior relationships with your specific creditors. Once you get answers from the agency, you’ll have to evaluate your situation. Determine if you can make and stick to a budget. Talk to your family and find out if it works for them, too. If you miss a payment, you may get into a worse situation because of late fees or higher interest rates. Explore all your options. If you can’t afford the monthly payment, you may want to find and speak with a bankruptcy attorney. Bankruptcy may be a better alternative in your situation.
Put Together Your Indiana Debt Management Plan
Once you commit to an Indiana DMP, you’ll need to provide additional information. Your counselor will ask for bank account information and more detailed credit card account information. Your credit counselor may ask for your cardholder agreements for your credit cards. The cardholder agreement contains the terms and conditions of the credit card account. These agreements outline relevant information necessary for a successful Indiana debt management plan. You likely received one in the mail when you opened your card. You can also get example agreements online from the CFPB. Creating the terms of your Indiana DMP is an important process. Choose a due date that works for you. Make sure you’ve considered all your expenses when creating a budget. Depending on your pay frequency, you may ask to make payments bi-weekly rather than monthly. Find out what your total fee for paying your monthly payments on the DMP. Determine when your creditors will start receiving funds. In the meantime, ask your credit counselor if you should be making payments to them. Those extra payments may be an extra financial burden but could avoid a negative impact on your credit report. Once you come up with a plan, the credit counseling agency contacts your creditors.
Begin Payments
It’s important to make your debt management program payments on time or early. Start implementing your budget in the first weeks of your Indiana DMP. Make sure you’re clear with your credit counselor on your payment due date and amounts. Your credit counseling agency will reach out to your creditors once you begin making payments. They will establish a plan and agreement with each of the creditors. Ask your agency about how long this process will take. In the meantime, stay in communication with your credit counselor. Ask if they can give you updates as they work with your creditors. As your debt management plan progresses, creditors will close your accounts. This may initially lower your credit score. Once your balances go back down, your score will increase.
How to Stay Current With Your Indiana Debt Management Plan
Before you even begin your plan payments, you can avoid issues by coordinating your monthly expenses. Set your DMP monthly payment at a date when no other large expenses, like rent or an auto loan, are being paid. Let your credit counselor know if you have any changes in your monthly expenses or income. Budget some extra savings each month in case of an unexpected one-time expense. Try tracking your spending to avoid going over your budget with spending. Use online budget tools or manually balance your checkbook at the end of each month. Go over the monthly reports the credit counseling agency sends regarding your DMP. Take time to celebrate when you hit important milestones in your plan. If possible, make extra payments on your plan when you are able. Don’t forget to keep emergency funds available in case of any extra expenses like unexpected car repairs. If you do have an emergency, talk to your credit counselor. They may have options or recommendations for you. If you properly budgeted for emergency expenses, you shouldn’t have a problem. If you have to use a credit card to pay for an emergency, pay it back as soon as possible. Talk to your credit counseling agency beforehand, to make sure this is allowable.
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Indiana Debt Consolidation
As mentioned before, an Indiana debt management plan is a form of debt consolidation. Indiana debt consolidation is a repayment plan for your unsecured debts. It works by taking out a debt consolidation loan or balance transfers to pay off your total debt. Debt consolidation loans have lower monthly payments than the combination of your existing debt payments. This works if you have a good credit score. You’ll want to get loan terms that are better than your current debts. Like a debt management plan, you’ll come out of a debt consolidation plan without any debt and without a negative impact on your credit score. You’ll also want to be careful as one large monthly payment may be harder to manage than several smaller ones. Budgeting is always an important part of any debt solution.
Indiana Debt Settlement
Debt settlement is different than a debt management plan because it only pays a portion of the debts you owe. Paying less than your total debt will have a negative impact on your credit. Indiana debt settlement usually works best if you have a manageable number of creditors, you have funds available for lump sum payments, and you have a trustworthy company to assist you. Each of your creditors have to agree to the settlement plan. They do not have to settle, which could cause problems. You also might be liable for taxes on the debt amounts forgiven by creditors.
Indiana Bankruptcy
One form of debt relief is bankruptcy. A Chapter 7 bankruptcy eliminates all of your unsecured debts but has a negative impact on your credit score immediately upon filing. Bankruptcy can be beneficial in situations where you have no other options. It’s a good idea to seek a free consultation with an Indiana bankruptcy lawyer. Upsolve can help you file bankruptcy at no cost if you can’t afford an attorney. Answer a few questions using the Upsolve screener to see if you qualify.
