How to Become Debt Free With a Debt Management Plan in New Jersey

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Written by Upsolve Team.  
Updated February 25, 2020

Summary

It takes a few steps to make a New Jersey debt management plan a success. This guide will go over what it takes to navigate this process, from your initial research to your final payment. 

Even though it can be tempting, you shouldn’t gamble in Atlantic City to get out of debt in New Jersey. There are plenty of money management and debt relief solutions available to get you the financial help you need that are far less risky than “rolling the dice” tends to be. Entering into a New Jersey debt management plan is one way to work towards becoming debt-free. A debt management plan (DMP) is a form of debt consolidation. New Jersey DMPs are achieved with the help of a credit counseling agency. The credit counseling agency administers the plan by taking your overwhelming credit card bills and other unsecured debts and combining them into a single account. You then pay the agency a single sum each month and the agency distributes those funds to your creditors. During this process, credit counseling agencies are often able to negotiate with your creditors to secure lower interest rates. You can benefit from a New Jersey DMP even if you don’t have the excellent credit score required to open up a new line of credit necessary for a debt consolidation loan. A New Jersey debt management plan will improve your credit score as your total debt is paid off over time. Note that New Jersey debt management plans work best if you use them to consolidate certain unsecured debts like credit card debt and medical bills. These plans can’t usually serve as a solution for payday loans, auto loans, or student loans. You may want to speak with a credit counselor about managing these debts using alternative financial resources. 

Is a Debt Management Plan the Same as a Debt Consolidation? 

A New Jersey debt management plan is a form of debt consolidation. Meaning, this process allows you to combine your unsecured debts into a single account that is paid on a monthly basis. If you choose to approach debt consolidation by using a new line of credit as a balance transfer (instead of entering into a DMP) you may be able to take out a personal loan, a home equity line of credit, or do a credit card balance transfer. By contrast, a New Jersey DMP uses a nonprofit credit counseling agency as a middleman instead of requiring you to secure a new line of credit. The agency makes payments to your creditors based on an agreed-upon plan. 

Debt consolidation (via a balance transfer) works best if you have a good enough credit score to secure a favorable debt consolidation loan. Do your research to avoid debt consolidation scams. Also, before you commit to debt consolidation, make sure to look at your budget and make sure you can afford the monthly payments. Debt consolidation is most successful when individuals make their payments on time, every month. 

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How to Become Debt Free With a Debt Management Plan in New Jersey

It takes a few steps to make a New Jersey debt management plan a success. This guide will go over what it takes to navigate this process, from your initial research to your final payment.


Find a Credit Counseling Agency

It’s important to begin the process of determining whether a DMP may be a good option for you by finding a good credit counseling agency. You’ll want to work with an accredited nonprofit credit counseling agency. Accredited organizations must meet certain standards to ensure they follow proper business practices. You can check any agency’s accreditation status by visiting the websites of the 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 are accredited. The Council on Accreditation oversees and administers the accreditation process. In addition to confirming an agency’s accreditation, check the agency’s reputation with the New Jersey Attorney General's office or the Better Business Bureau. You don’t want to work with a scam artist; choosing an accredited agency will help you avoid being taken advantage of. 

You should also look into what the agency charges for any of its follow-up services. Your initial credit counseling session is always free, but the agency will likely charge you fees for administering a DMP and/or allowing you access to additional money management resources. Ask what the agency can do if you can’t afford their fees. Find out how your credit counselor is compensated. You might get pushed into a solution that isn’t right for you if your credit counselor gets a bonus if you sign up. Finally, find out how the credit counseling agency will communicate with you during the administration of your plan. If you prefer phone conversations over emails, find out if they are available over the phone when you need assistance.

What to Expect at Credit Counseling

You’ll want to take some time to prepare for your first credit counseling session. Gather up your credit card bills and debt statements like medical and utility bills. It’s helpful if the statements list the interest rates and minimum monthly payments you’re required to make. You can also pull your credit report for free to make sure that you let your counselor know about all the debts you owe. You’ll also want to get a good idea of your monthly income. Gather your recent paycheck stubs, benefit statements, and other relevant proof of income. Finally, write down your recurring monthly expenses, like car loans and utility expenses and any predictable but irregular expenses you incur each year, like car repairs and holiday gifts. Your counselor will want to know what kind of payments you can afford each month. 

The initial counseling session takes about an hour. Everything you discuss will be confidential. Your creditors won’t be notified of your session or anything you discuss during your session. The credit counselor will ask about your income, expenses, and debts. You and the credit counselor will 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. Your counselor may recommend a debt management program if you’re a good candidate for this process.

Making the Decision & Getting Started

You shouldn’t commit to entering into a debt management plan right away. You should spend some time reviewing your options and deciding what debt relief option will work best for you and your family. Your credit counselor shouldn’t pressure you into making a choice. Talk with your family and see if they are on board with your decision to enter into a DMP. Determine whether you can stick to a budget, as a successful debt consolidation process is dependent upon timely monthly payments. When exploring your options, you may even benefit from speaking with a bankruptcy attorney. Bankruptcy may be a better debt management alternative for your situation. However, if you can commit to the monthly payment and it seems like the best option available, then maybe you’re ready to move forward with a debt management plan.

Put Together Your New Jersey Debt Management Plan

You’ll need to provide your credit counselor with additional information before you can enter into a New Jersey DMP designed to succeed. Your counselor will ask for bank account information. They may ask for more detailed credit card account information and cardholder agreements. A cardholder agreement contains the terms and conditions of a credit card account. These agreements outline important information they will need to formulate your plan. You likely received one in the mail when you opened your card. The CFPB has sample agreements online. 

It’s important to create terms of your New Jersey DMP that will work for you. Choose a due date that makes sense for your financial situation. Depending on your pay frequency, you may ask to make your DMP payments bi-weekly rather than monthly. Figure out when your creditors will start receiving funds. Ask your credit counselor if you should be making payments to your creditors on your own until this time.  

Begin Payments

Your credit counseling agency will contact your creditors to establish a plan and an agreement with each of them. They already have relationships with many creditors. Ask your agency about how long this process will take. After they reach an agreement with your creditors, talk with your credit counselor to make sure you’ve gotten the due date and payment amounts correct. Make your debt management program payments early if you can. Use the first few weeks of your debt management plan to manage your budget and make sure your expenses are being paid.

How to Stay Current with Your New Jersey Debt Management Plan

Careful planning before you start making payments will help you avoid problems for the duration of your New Jersey DMP. First, set your DMP monthly payment due date when no other large expenses are also coming due. If you track your spending, you can determine when you’ll have the money for the payment. You can use a budgeting app or a simple spreadsheet. If your income or expenses change dramatically, inform your credit counselor and request to change your regular payment due date if necessary. 

Make extra payments on your plan when you are able. On the other hand, if you do have an emergency, talk to your credit counselor. They may have options or recommendations for you. Emergency expenses like car repairs or medical copays can break a budget. As a result, you’ll want to budget some extra savings each month in case of an unexpected one-time expense. If you use emergency funds, remember to replenish them again. If you have a grasp on your budget and spending at the start of your plan, you’ll be in a better position to make your regular monthly payments without much hassle. 

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New Jersey Debt Consolidation

A New Jersey debt management plan is a form of debt consolidation. New Jersey debt consolidation can also be accomplished by securing a new line of credit and using that loan as a balance transfer to pay your existing debt. Debt consolidation loans work best if you have a good credit score, as you’ll want to be able to secure loan terms that are better than those that govern your current debts. Like DMP repayment, you’ll make one monthly payment on your consolidation loan. 

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New Jersey Debt Settlement

Other debt relief options include debt settlement. Debt settlement is different than a debt management plan. Debt settlement only pays a portion of the debt you owe. You can either negotiate with your creditors directly or seek the services of a for-profit debt settlement company. You’ll offer a creditor a lump sum of money in exchange for partial debt forgiveness on the remainder of your balance owed. Note that paying less than your total debt will have a negative impact on your credit. Some debt settlement companies are scams, so research them before you commit to paying them any money. 

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New Jersey Bankruptcy

Bankruptcy can be an important tool if your goal is to become debt-free. A successful bankruptcy will either restructure your debt and eliminate most of your unsecured debts over time or allow you to eliminate eligible debts outright, depending on the type of bankruptcy you file for. It’s a good idea to seek a free consultation with a New Jersey bankruptcy lawyer if you’re interested in exploring this option. Upsolve can help you file for Chapter 7 bankruptcy at no cost if you’re eligible for this form of bankruptcy. Answer a few questions using the Upsolve screener to see if you qualify for free assistance.

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