This part of the guide will focus on the steps for a DMP. The rest of this guide will look at alternative debt solutions.
Written by Attorney John Coble.
Updated January 3, 2020
The two most famous Missourians were both very familiar with financial difficulties. Mark Twain filed bankruptcy in 1894 after making bad investments. Harry S Truman's clothing business failed in the Depression of 1920-21. This business failure pushed Truman to the edge of bankruptcy and he didn't finally settle his debts until he was a senator in the mid-1930s. He settled his debts for less than the full amount due. Truman's financial recovery wasn't complete until the mid-1950s. If a financial disaster can hit Mark Twain and Harry Truman, the same can happen to you. Whether your financial challenge is the cost of living in Kansas City and St. Louis or you are a farmer whose crops of rotting in the fields due to a trade war, Missourians from all walks of life are suffering from financial difficulties.
A Missouri debt management plan is a way of consolidating unsecured debts for people whose credit score isn't high enough to get a favorable debt consolidation loan. In a Missouri DMP, a credit counseling agency negotiates with your lenders to get lower interest rates on your debts so you can get into a repayment plan that allows you to make one lower monthly payment to the credit counseling firm. The credit counseling company then pays each of your creditors. This is much easier for you since you only have to keep up with one payment per month instead of many credit card payments. The debt management program puts you on a clear path to being debt-free.
Missouri debt management plans include unsecured debts such as credit card debts and sometimes even medical bills. Debt management programs don’t work well for payday loans, student loans, and secured debts such as car loans. If a DMP fails, late fees and a default interest rate will kick in. This will leave you in a worse position than had you never tried a DMP. While in a Missouri DMP, you can't take out new debt unless it’s a car loan or a mortgage. When taking out this new debt, you need to coordinate with your credit counselor.
Is a DMP the Same as a Debt Consolidation?
In a debt consolidation, you get a debt consolidation loan to pay off your debts. The debt consolidation loan could be a personal loan, home equity lines of credit, or a balance transfers on credit cards. There are some risks with consolidations. Since you still have the original credit card accounts that are now completely paid off, you could use these accounts by accident. Doing this will increase your debt while you're trying to decrease your debt. If you use a credit card balance transfer for your debt consolidation and you do not have the debt paid off before the card's introductory lower-interest-rate expires, you could find yourself in trouble. The remedy for this is to do another balance transfer for a low introductory rate card. The problem is that you aren’t guaranteed of being able to qualify for a new credit card at a low-interest rate. The worst risk from a debt consolidation loan comes with using a home equity line of credit for your consolidation loan. If you default on this loan, you could lose your home, so think carefully about whether that makes sense for you.
How to Become Debt Free with a DMP in Missouri
This part of the guide will focus on the steps for a DMP. The rest of this guide will look at alternative debt solutions.
Find a Credit Counseling Agency
In your credit counseling sessions, you and your credit counselor will design the best plan for you to meet your financial goals. It’s important that you find a good nonprofit credit counseling agency. One way of making sure you're hiring a good counseling agency is to make sure that they are a member of the National Foundation for Credit Counseling (NFCC). The NFCC is the oldest organization representing nonprofit credit counseling firms. To be a member of the NFCC, a credit counseling firm must meet strict standards.
As with any good or service, ask about the cost before becoming obligated to pay. Initial credit counseling sessions should always be free. It’s a good idea before your first session, to ask the counseling agency what you need to have available during the session. It’s common for you to need your bank account statements, credit card bills, other bills, and paycheck stubs.
It’s a good idea to ask how the credit counseling firm compensates its counselors. This is important because you need to know if the counseling agency pays their counselors incentives or bonuses to steer you into particular debt relief options. If the credit counseling firm does pay their counselors in this way, the counselor may put their own financial interest above yours. Find another credit counseling company if this is the case.
Different counseling agencies do things in different ways. Some counseling agencies have sessions only by phone or via online meetings. Other credit counseling firms may only allow in-office meetings. It’s important to find what works best for you.
What to Expect at Credit Counseling
At your initial credit counseling session, you'll need paycheck stubs and bills. Or, you could bring a written schedule of income and expenses. You would also need a schedule of your credit card debts with minimum payments and interest rates available for each debt. You need a schedule of your other debts too. Your initial credit counseling session will take forty-five minutes to an hour. You aren't going to be talking to a customer service representative. You'll be talking to a trained and certified credit counselor. Your counselor will assess your income, expenses, and debts. Your credit counseling session will be completely confidential. By the end of your first credit counseling session, your counselor will recommend a plan of action custom-tailored to your financial situation. It's important to realize that credit counseling is sometimes referred to as financial counseling.
Making the Decision & Getting Started
Even when your counselor recommends a plan for you, give yourself a little time to consider the debt solution. It's a good idea to ask your counselor about the credit counseling agency's relationship with your particular creditors. Credit counseling organizations develop these relationships by negotiating with creditors for many different clients. Ask how successful the agency has been with these particular creditors.
Ask yourself how you feel about the budget necessary for a successful Missouri debt management plan. Can you stay on this budget? If not, you may want to see if the counselor can help you adjust your budget. If this doesn't work, you may want to consider other debt solutions. One other debt solution would be bankruptcy. Most bankruptcy attorneys offer free initial consultations for you to find out what bankruptcy can do for you.
Put Together Your Missouri Debt Management Plan
When negotiating with the credit card companies, your credit counselor will likely need copies of your credit card agreements. They need these agreements to know the terms for each card. They are trying to negotiate more favorable terms for you. Most people don't know where their credit card agreements are. These days, there is a simple way to get your credit card agreement. Use the Consumer Financial Protection Bureau's Credit Card Agreement Database.
Remember that there are no bad questions. If you don't understand something, ask your counselor. It's a good idea to see if the credit counseling agency will accept payments more often than monthly. For example, you may want to have a payment due on each of your paydays during the month. The due date might work best for you if it were on every other payday. Ask your counselor if you can do this. It may be a good idea for you to have the credit counseling company take an automatic payment on your due dates. Ask your counselor if they can do that.
Ask your counselor what to do about payments to creditors included in the Missouri debt management plan before the creditors accept the Missouri DMP. The problem is that making the payment could result in your paying the creditor twice for the same payment with one payment made by you and the other by the Missouri DMP. But, not making the payment could have a negative impact on your credit report. Your credit counselor knows your particular situation and will be able to make a recommendation on what to do about making the payments based on your unique situation.
When you start making your Missouri debt management plan payments, make these payments on time if not early. The early months of your Missouri DMP is a good time to get in the habit of following your new budget.
Your counseling agency starts negotiating with your creditors after you have signed off on the debt management plan and started making your Missouri debt management plan payments. Stay in touch with your credit counselor to know what is going on. Check your monthly reports from the credit counseling firm to know who is being paid what. If you want to get updates about each creditor, talk to your credit counseling company. Now that the creditors have agreed to your Missouri DMP, your credit report has taken its worst hit. As you make your Missouri DMP monthly payments, your account balances drop, and your credit score rises. Sometimes your credit score is called your FICO score.
How to Stay Current with Your Missouri Debt Management Plan
It makes sense to track your expenses while you are in a Missouri debt management plan because you need to stay on budget. Not tracking your expenses is like driving a car without paying any attention to your speed. In a car, you have a speedometer to track your speed. What do you have to track your expenses? There are good online tools to track spending such as Mint.
It’s a good idea to reward yourself when you reach certain milestones in your Missouri debt management plan. For example, you could celebrate each time your total debt balance falls by a thousand dollars. These "rests" along the way will make it easier for you to maintain the discipline to get through the Missouri DMP. Imagine if you didn't rest between workdays. You would become much less productive. These little rewards are your rest stops as you move through your Missouri debt management plan. These rewards give you the "juice" to keep going. Make sure the cost of the rewards is small. The reward could be something like going out for dinner or a movie.
Make extra payments when you can. This will allow you to get ahead on your payments and have more breathing room should an emergency expense come up. If you do have an emergency expense that may impact your ability to make your debt management plan payment, contact your counselor immediately. Your counselor may know of a solution to your problem. Or, your counselor may be able to negotiate some extra time for you with your creditors.
Missouri Debt Consolidation
Missouri debt consolidations use loans to pay off your debts. The debt consolidation allows you to make only one payment since you now only have to make the payment on the consolidation loan. Consolidations are good if your credit score is high enough for you to get a consolidation loan with a lower interest rate than your paid off debts. With a consolidation, it’s important not to use the credit cards that you paid off.
Missouri Debt Settlement
A Missouri debt settlement is when you settle your debts for less than the full amount due. This is what Harry Truman did in the story at the top of this article. Debt settlements only make sense if you have enough money to make large lump sum payments and your credit is already in bad shape. This was the position Truman was in. One problem with debt settlements is the creditors don't have to settle with you. In Truman's case, he was a senator by the time he settled his last debt.
A Missouri bankruptcy will solve most financial problems. If other debt relief solutions will not work for you, don't hesitate to consider bankruptcy. If you're having problems providing for your family or yourself, bankruptcy may be the solution for you. With a few exceptions, a Chapter 7 bankruptcy will eliminate all the debt you choose to eliminate. Some taxes and all student loans are the main exceptions to this rule. We help people file their own Chapter 7 bankruptcy in cases that don't need an attorney. In cases that do need an attorney, we can help you find a qualified attorney in your area.