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

Find a Credit Counseling Agency

The first step to building your Kentucky debt management plan is finding a reputable credit counseling agency to work with. There are for profit and nonprofit agencies in operation but working with an accredited, nonprofit agency is your best bet. A for profit agency generally charges for all of its services, while a nonprofit credit counseling agency is able to offer a free initial credit counseling session to anyone who is interested in learning more about their financial options. If you choose to enter into a DMP with a nonprofit agency, there will be some fees charged unless you qualify for a fee waiver. However the initial credit counseling session will always be free if you work with an accredited, nonprofit agency. 

In the end, if you decide to use a for profit credit counseling agency, be sure to ask about costs – both up front and down the road. You are always allowed to ask what happens if you can’t afford their fees down the road, as well as how your credit counselor is compensated. Credit counselors who receive incentives for signing people up for services are less likely to make recommendations based solely on your needs. This is one of the many reasons why working with a nonprofit agency is generally a better idea than working with a for-profit company. 

When selecting a specific nonprofit agency, look for an accredited nonprofit because they are bound to follow the highest quality standards and ethical guidelines in the industry. The National Foundation for Credit Counseling (NFCC) is the largest nonprofit financial counseling organization in the country. All member credit counseling agencies listed on the NFCC website must be certified by the COA. The Council on Accreditation (COA) is the independent company that reviews credit counseling agencies and their practices to determine whether they’re worthy of accreditation – only those demonstrating best practices receive this designation. And just to be extra cautious, you can also check with the Kentucky Attorney General’s Office for a history of complaints against any credit counseling agency you choose. By researching an agency’s reputation now, you may save yourself a significant headache down the road.

What to Expect at Credit Counseling

The idea of meeting with a credit counselor may sound intimidating, but don’t worry. Your initial credit counseling session is just an upfront conversation between you and a certified counselor from your credit counseling agency, usually over the phone or in person, about your financial situation and your  debt relief options. It’s completely confidential, so your creditors won’t know what you talked about or that the conversation even happened. 

Before the initial counseling session, which should take an hour or less, getting some documents together will make it easier for your credit counselor to provide you with personalized guidance. Gather records concerning your sources of income together and make a list of your debts. It’s helpful to have the total debt owed per creditor, minimum payments per month, and interest rate if you can find this information in time. A copy of your credit report, which can be ordered for free, is a helpful way to access a current list of your secured and unsecured debts. 

You and your counselor will go over your income, general monthly expenses, and your list of debts. Once you figure out financial goals, your counselor will make suggestions and you’ll develop an action plan. If one of the recommendations is a debt management program, you’ll be able to ask your counselor whether the agency is in a position to manage your particular DMP. 

Making the Decision & Getting Started

When you’re constructing your DMP, you and your counselor will need to discuss logistics in detail. You should ask yourself first whether you can stick to a budget and make your payments every month, on time, as defaulting on your DMP may leave you in a worse financial position than you are now. It may take time to determine whether your budget can accommodate a DMP repayment. But don’t fret. Your counselor shouldn’t pressure you to make a decision at the end of the initial session – even if they’re telling you that you’re a good candidate for a Kentucky debt management plan. 

Before you commit to the DMP option, you’ll also need to ask your counselor about fees. Most credit counseling agencies charge a fee for managing your Kentucky debt management plan – this is legal in the state, but Kentucky law dictates that it is no more than $50 annually and either $30 monthly or the greater of 8.5% which is built into the monthly consolidated payment. Even with the fee included, your single payment every month could still be considerably lower than your previous payments. You’ll also be out of debt much more quickly. Not that Kentucky law prohibits the credit counseling agency from charging you more than $75.00 for an initial set-up fee. 

Make sure you explore all your options before you commit to a plan. There are many loan consolidation options, and (alternatively) bankruptcy may also be a solution to your financial challenges depending on your situation. If you want to speak with a Kentucky bankruptcy lawyer when weighing your debt management and debt relief options, Upsolve can help you find one that may be able to help you make an informed decision about your situation as a whole. 

Put Together Your Kentucky Debt Management Plan

As you and your counselor put together your Kentucky debt management plan, you will need to provide the agency with detailed financial information so that your credit counselor can prepare a comprehensive plan on your behalf. Don’t be surprised if they need credit card account and bank account information, debt statements, and credit cardholder agreements. This information is important in calculating an accurate payment that creditors are more likely to accept, and that you can afford. Putting this plan together in an intelligent, informed way is probably the most important thing you’ll do outside of making your payments on time. 

Begin Payments

Once a monthly payment has been established, your credit counselor should be very clear with you about the amount you’ll owe each month and the due date for that payment. Usually after you start making the payments you’ve agreed to in your action plan, your credit counseling agency will reach out to your creditors and negotiate with them. The goal is to have them accept the action plan and to establish a binding agreement. If you’re anxious while waiting for their response, you can speak to your credit counseling agency to get updates on individual creditors. With that said, if your credit counselor thinks you have a solid plan in place, there should be little to worry about. When you’re working with an accredited, nonprofit agency, they usually know how to predict payment terms that creditors will accept. Credit counseling agencies also have long standing relationships with banks and lenders, so they should be able to give you a timetable on the approval process. 

Once you begin making payments, your credit score may initially decrease as creditors begin closing your accounts. Don’t panic! Keep paying on time – early if you can. As you pay down debt balances, your score should start to rise again. Just stick with your budget and be sure to speak to your counselor if your financial situation changes at all.

How to Stay Current with Your Kentucky Debt Management Plan

Developing a system is a good way to stay on top of your Kentucky DMP. It’s critical to keep track of your personal finances so that your Kentucky debt management plan can ultimately be successful. You already went over your expenses and income with your credit counselor – continuing to track those expenses and sticking to a budget can be helpful in ensuring that you  have enough income available to make your monthly payment by the due date. Spreadsheets and budgeting apps can be helpful to track your spending. 

Remember to leave some room in your budget for a rainy-day fund. Emergencies do come up, and sometimes an unexpected large expense like an auto repair is unavoidable. You don’t want an emergency to derail your ability to keep making your payment. If an emergency, large expense, or change in your financial situation happens and you’re having trouble managing it, talk to your credit counselor about what to do regarding your payments to keep your Kentucky debt management plan on track.