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How to Become Debt Free with A Debt Management Plan in North Carolina

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In a Nutshell

A North Carolina debt management plan can help you to work toward a debt free future. Before you can benefit from a DMP, you’ll have to find a credit counseling agency, determine a budget, and make regular payments to get the DMP off the ground.

Written by Upsolve Team
Updated February 19, 2020

If you’re struggling to pay off debt, you’re not alone in the Tar Heel State. Thankfully, there are debt relief options available to you and your family. For example, a North Carolina debt management plan can help you manage several bills at once by using a lump sum monthly payment to pay off your unsecured debt within a few years. 

A debt management plan (DMP) allows you to restructure and ultimately streamline your debt by having you to make a single monthly payment on your consolidated debt per the terms of a repayment plan. Debt management programs don’t generally consolidate secured debt. Secured debt is debt attached to collateral like a house loan or auto loan. A debt management plan, also known as DMP, is generally a useful debt relief option for unsecured debt. Some student loans are considered unsecured debt but they aren’t generally consolidated in a DMP because DMPs tend to be paid off over five years and student loans tend to have a longer “life.” 

You’ll first work with a credit counseling agency to review your personal finances and letters from collection agencies. The credit counselor will help you to develop an action plan. When possible, lower interest rates and lower monthly payments will be arranged. Instead of having to pay each creditor every month, you’ll just make one lump sum payment to the credit counseling agency per the terms of your DMP. The agency will make payments to your creditors. The goal is to pay off your consolidated debt within a few years. 

Is a DMP the Same as a Debt Consolidation?

Debt consolidation comes in two primary forms. A debt management plan (DMP) is a form of debt consolidation, and a debt consolidation loan is another form of debt consolidation. With a DMP, you don’t take out a new loan, you simply make a monthly payment to pay off your existing debt. With a debt consolidation loan, you use a new line of credit as a balance transfer to address your debt burden. The new loan is used to pay off your existing debt. A debt consolidation loan may be particularly helpful if the new loan offers lower interest rates than your current debts—but be cautious of origination fees and costly repayment terms. 

How to Become Debt Free with A Debt Management Plan in North Carolina

A North Carolina debt management plan can help you to work toward a debt free future. Before you can benefit from a DMP, you’ll have to find a credit counseling agency, determine a budget, and make regular payments to get the DMP off the ground.

Find a Credit Counseling Agency

Some credit counseling agencies work for profit and others are nonprofit agencies. Nonprofit credit counseling agencies do not charge a fee for a one-time credit counseling consultation. It is generally a much better idea to work with an accredited, nonprofit agency because their services are held to high standards. Too often, for-profit agencies operate as scams. 

You can find a reputable nonprofit credit counselor that does not charge a fee for an initial consultation at the website for the National Foundation for Credit Counseling (NFCC). The NFCC is a foundation that serves accredited non-profit credit counseling agents and consumers seeking debt relief options. The organization maintains a list of non-profit credit counselors and information for people interested in debt relief programs. If there isn’t a financial counseling agency located near your home, you should be able to talk with a credit finance counselor over the phone or online; just make sure that the credit counseling agency you want to work with provides these alternative options. 

All NFCC members are accredited through the Council on Accreditation (COA). This accreditation must be renewed regularly. It ensures that credit counselors and credit counseling agencies are following the laws that were created to protect you, and that they are taking appropriate steps to protect your privacy. Accredited counselors and credit counseling agencies are educated in financial management. They will use best practices in financial management to help you find and manage your personal debt relief solution. The NFCC is recommended by the North Carolina Attorney General’s Office

What to Expect at Credit Counseling

Your complimentary credit counseling session at the nonprofit credit counseling agency of your choice should last no more than an hour. Your meeting with the accredited nonprofit credit counselor is confidential. Before you start, collect your most recent bills and proof of income so you can create a picture of your personal financial situation. You and the credit counselor will talk about short-term and long-term goals before creating an action plan to achieve debt relief. 

You’ll review your income, assets, debt, and expenses. You and the counselor will review your secured debt (debt with collateral, like a car loan) and your unsecured debt (credit cards, bank or credit union loans, and medical bills).  After a review of your personal financial situation and goals, the counselor will create an action plan uniquely tailored to your situation. The counselor may recommend a North Carolina debt management plan and/or another form of debt relief.  At the end of the counseling session, you’ll be empowered to make informed decisions about your situation moving forward.  

Making the Decision & Getting Started

After you talk to your credit counselor, you’ll have to decide whether to commit to a debt management plan. A credible counselor will not pressure you to get started or pressure you to make payments you can’t afford. If you don’t feel comfortable with your counselor, make an appointment with a new credit counselor at a different counseling organization. 

Your personal financial decisions affect you, your family, and your loved ones. Starting a debt management plan is a big commitment. Defaulting on the plan will backfire. You’ll have added penalties, and you may end up with higher interest rates and having to pay more money towards your debt each month. Make sure you review your budget to make sure you're comfortable with the monthly payments. You should also make a point to discuss setup fees with the DMP agency and the maximum amount of fees that can be charged by creditors. 

Review all of your debt relief options before you decide to sign a final North Carolina DMP payment agreement. If your income isn’t enough to support a reasonable debt management plan, or you have more secured debt than unsecured debt, take time to talk to a bankruptcy attorney first, as pursuing more comprehensive debt relief solutions may be in your best interests. Keep in mind that if you do decide to proceed with a North Carolina DMP, your lines of credit and credit cards may be limited or closed during the process. You’ll need to plan your budget accordingly. 

Put Together Your North Carolina Debt Management Plan

To put together a North Carolina debt management plan, you’ll need to dive a little deeper into your personal finances. The details of your DMP will be decided after a thorough review of your personal finances and the details of your bank account statements and credit card agreements. This will help establish due dates and realistic expectations. Your credit card agreements have crucial details that can be used during DMP negotiations. If you don’t have your credit card agreement, you can check your credit card’s website to see if a copy is available online. The Consumer Financial Protection Bureau (CFPB) keeps a database of credit card agreements. You can search for the bank, credit union, or credit card business that issued you the card to find the credit agreement for your credit card(s).

Before you finalize your North Carolina debt management plan, be sure to talk to your credit counselor about associated fees, particularly additional set-up fees and late fees for the debt management program. The North Carolina Attorney General website points out that credit counseling agents are limited to charging no more than $40 to arrange a debt management plan and no more than 10% of the monthly payment for administrative fees. Administrative fees for counselors are limited to a $40 monthly fee. A North Carolina debt management plan must abide by North Carolina laws regarding how much they can charge clients.

You and your counselor should review your payment history and talk about the best time to make payments. Once you have your action plan, agreements with creditors, and a DMP payment schedule, you can start paying off your debt through your North Carolina debt management plan. 

Begin Payments

Before your first payment is due, your counselor will let you know how much your DMP payment will be, the date the debt payment will be due each month, and which debts are being paid off through your North Carolina debt management plan. You'll also sign a North Carolina DMP agreement before you make any payments. Payment due dates and payment amounts for the North Carolina DMP will depend on your personal financial situation. 

When you begin payments on your North Carolina debt management plan, your credit score will be temporarily impacted until the debt is paid in full. Experian reports that when a DMP exists, a mark is made on the credit score report. But, that the mark is removed from the credit report after the debt is paid in full. If you stay current with all debt payments, you can improve your credit score overall. 

How to Stay Current with Your North Carolina Debt Management Plan

A recent study in debt management plans indicates that people are more likely to complete debt management plans successfully when they feel the payments are realistic and when they like their credit counselor. If you’re uncomfortable with your counselor, find a new accredited counselor before you sign on the dotted line. You should feel confident signing the DMP agreement. Take a look at the due dates for your biggest bills. If your housing payment is due at the beginning of the month and you get paid weekly, consider scheduling your North Carolina DMP payment in the middle of the month.

Before you sign your North Carolina DMP agreement, have a plan in place to fund emergencies. Another Hurricane Florence or Hurricane Matthew could hit the coast, or a driver rushing to the Raleigh–Durham airport could rear-end your car during rush hour. You don’t want to let emergencies serve as a reason to default on your DMP. If you can’t make a payment after signing an agreement, talk to your counselor right away. Keeping your counselor current with your struggles helps you and the counselor manage the North Carolina DMP so you don’t end up defaulting on your debt plan.

Once your budget is made, keep track of your spending. There are budget apps, spreadsheets, and budget notebooks that can help you stay organized. Motivation is a key factor in keeping your DMP agreement going through the years. Create a personal motivation plan that works for you that doesn’t involve getting yourself into more debt. 

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North Carolina Debt Consolidation

Although a debt management plan is a form of debt consolidation, a DMP is not the same as using a debt consolidation loan to pay off debt. To get a loan for debt consolidation, your credit score will have to be high enough to qualify for a new line of credit. You’ll want a debt consolidation loan that offers lower interest rates than your current accounts do. A debt consolidation loan is used to pay off the total balance of your debt. Securing a North Carolina debt consolidation loan may be a better debt solution if you don’t want your debt solution to have a negative impact on your credit score. Keep in mind, if you default on the debt consolidation loan, you’ll have late fees and penalties just as you would with a DMP. 

North Carolina Debt Settlement

A North Carolina DMP also differs from a North Carolina debt settlement plan. When you agree to a debt settlement agreement, you will be able to close your debt-related account(s) for less than the total amount owed. For instance, if you owed $300, you might pay only $175 total under a debt settlement plan. The creditor would forgive the remaining balance ($125). Your credit report from the credit bureau will show you did not pay the debt in full—even after the account is closed. This will be reflected in your credit score. There are many reports of unethical debt settlement companies, so be sure to do your research before choosing this debt relief option. 

North Carolina Bankruptcy

If you can’t manage your debt through the DMP process, you may want to think about talking to a bankruptcy attorney and learning more about what a North Carolina bankruptcy involves. Bankruptcy will allow you to eliminate eligible debts, either outright or after you have completed a repayment plan for 3-5 years. You can also talk to your credit counseling agent about bankruptcy options. Upsolve has instructions to help you file bankruptcy on your own

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