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

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In a Nutshell

The options for getting out of debt can be confusing. Getting information can help you make the best choice and start taking control of your finances. A Pennsylvania DMP is a good option to consolidate and then pay off – not just manage – your debts. We’ll show you how the process works and why working with a credit counseling agency to go over your finances, create a manageable monthly payment plan with your creditors, and start regaining your financial freedom. 

Written by the Upsolve Team
Updated January 3, 2020

It can be overwhelming to be in debt over your head and be searching for a way out. One path is taking advantage of a Pennsylvania debt management program. In a debt management program, you get help from a credit counseling agency and credit counselor to come up with a personalized repayment plan for consolidating all your debts into one monthly payment and completely paying them off. Once you start making payments as dictated by the plan, the agency will contact your creditors in order to get them to accept and adopt it – often a plan with lower interest rates and a lower payment due every month. Once the plan is accepted by your creditors, the administrator for your Pennsylvania debt management plan will begin distributing your payments to each one of your creditors until your debts are gone.

Staying current on your DMP payment means you’ll avoid late fees and penalties for the duration of your repayment. Pennsylvania’s debt management program, however, isn’t the right choice for everyone. A DMP only addresses certain unsecured debts like credit card debt and, in some cases, medical bills. People with payday loans or secured debt like a car loan should look at other options. DMP participants should also be prepared to live without credit for the near future because as soon as they’re notified that you started a DMP, the credit card companies will close your accounts. You’re also usually disallowed from getting into any more debt or establishing new credit while on your repayment plan.

Is a DMP the Same as a Debt Consolidation?

A Pennsylvania debt management plan is a type of debt relief that falls under the broad category of debt consolidation. When most people mention debt consolidation, though, they’re really referring to a debt consolidation loan. These loans can involve simply transferring credit card bills to a card with a much lower interest rate or more complex transactions like taking out a home equity line of credit. Both debt consolidation loans and DMPs function to lower payments and secure lower interest rates on your debts. Both debt relief options also functionally roll multiple accounts into a single monthly payment.

The main difference between the DMP and other consolidation tactics is a debt management plan doesn’t involve a loan. That means unlike consolidation loans, you don’t need a minimum credit score to qualify and you don’t risk losing home or vehicles to default by taking out a secured loan. However, a Pennsylvania DMP will show on your credit report, and credit card companies will close all your credit card accounts as soon as they’re notified entered a DMP. You also won’t be able to take out more lines of credit until you’ve completed your DMP and all debt is repaid.

How to Become Debt Free with a DMP in Pennsylvania

The options for getting out of debt can be confusing. Getting information can help you make the best choice and start taking control of your finances. A Pennsylvania DMP is a good option to consolidate and then pay off – not just manage – your debts. We’ll show you how the process works and why working with a credit counseling agency to go over your finances, create a manageable monthly payment plan with your creditors, and start regaining your financial freedom. 

Find a Credit Counseling Agency

You need to find a trustworthy credit counseling agency before you create your Pennsylvania debt management plan. Agencies in Pennsylvania must be licensed. You can either pick a for-profit or nonprofit credit counseling agency to help you. For-profit counseling agencies charge their consumers for their services, and nonprofit agencies don’t charge a fee. Nonprofits offer free advice you can use even if you decide not to use their professional services, so seeking one out is an advisable first step. Remember that most initial counseling sessions are free. You should also be provided with free informational materials that answer FAQs on request. 

Now is your chance to ask questions about how you’ll meet, their fees, what happens if you can’t afford fees later, and the compensation method for counselors – commission-based counselors may try to sell you on pricier services for their own benefit. 

Before you make your final decision, check a few places when you’re looking for a credit counseling agency to make sure they’re trustworthy.

  • The Pennsylvania Attorney General’s website will have any complaints filed against the agency, 

  • Contact the Better Business Bureau to see if the company is in good standing. 

  • For nonprofits, make sure the agency you choose is accredited by the NFCC (National Foundation for Credit Counseling), the country’s largest nonprofit financial counseling organization. The NFCC only accepts members certified by an independent company as having best professional practices. 

No matter which agency you choose, make sure you do your research first. If anything about the agency you’re evaluating makes you uncomfortable, look for a different agency.

What to Expect at Credit Counseling

You initial counseling session is just an hour-long conversation with a counselor; no need to worry.  Pennsylvania credit counselors can help you with many things: student loans, personal finance questions, and debt management programs. This also includes your Pennsylvania debt management plan. You may need a few follow-up sessions, but the initial session is meant for you to discuss your financial situation, set goals, and make a realistic, achievable repayment plan to reclaim your financial future. 

To make your session productive and go as smoothly as possible, you should gather some documents to bring with you. You’ll be talking about your finances, so you should bring:

  • Evidence of income such as paystubs and W2s

  • Expenses like utility bills, cell phone bills, mortgage bills, and student loan statements

  • Debts. If possible, you want a list of all secured and unsecured debts you owe each creditor, interest rates on those debts, and minimum payments for each.

You can gather a lot of information on the debts by ordering your credit report. At the end of your counseling session, your counselor may make suggestions about debt solutions that might benefit you, but just because you’re a good candidate doesn’t mean you must decide on a particular option or decide immediately.

Making the Decision & Getting Started

Before you decide to move forward with a Pennsylvania DMP, ask questions. Are there set-up fees or a monthly fee to administer your debt management plan? If so, how much? Fees are legal in Pennsylvania, usually range between $25 and $50, and built into the monthly payment calculations. Find out what kind of relationship your agency has with each of your creditors. Good relationships can make communication with creditors easier and creditor agreement to your plan more likely. You don’t have to decide right away, and it’s a bad sign if your credit counselor pressures you to decide at the end of your session or keeps pushing you towards a specific solution.

You should also think long and hard before committing to a plan. Can you stick to your budget and afford the payments? Can you commit to several years of payments? The penalties and defaults you could face if you fail to keep to the plan may leave you financially worse off than when you started. Did you explore all your options? For some people, other debt solutions are the better answer. Bankruptcy may even make the most sense. Upsolve can help you find a Pennsylvania bankruptcy lawyer who can answer your questions and help inform your decision. However, the decision is ultimately up to you. Once you do decide, though? Give it your best effort. 

Put Together Your Pennsylvania Debt Management Plan

As you and your credit counselor put together your Pennsylvania debt management plan, you’ll need to provide detailed financial information so they can put together a comprehensive plan for you. Don’t be surprised if they need credit card account and bank account information, statements from creditors, and cardholder agreements from credit card companies. This is important to help calculate an accurate payment that creditors are more likely to accept, and you can actually stick to long-term. Putting this plan together is probably the most important thing you’ll do outside of making your payments on time. 

Afterwards, look at the plan – can you stick to the budget? Is it realistic? Have you forgotten any expenses? Be sure you’re comfortable with the plan. Your creditors will see it once you and your agency put it together and you agree to it, but once they accept the plan you’re locked in for the long run. 

Begin Payments

You did your research, took the time to gather important documents, found a credit counseling agency, had financial counseling, budgeted and crunched numbers, and now your Pennsylvania debt management plan is finally up and running. Your job now is making monthly debt payments on time until the debt is gone. You should’ve received your payment due date and monthly payment amount from your counselor – if these are not clear, contact them. Mark the date on your calendar or your phone to remind you. It’s crucial you make your payments on time every month. If you receive any unexpected additional income, consider making extra payments and talk to your counselor. Once you begin paying, your agency will contact creditors to secure acceptance of your Pennsylvania DMP. Don’t worry if your creditors don’t respond right away – it can take time for an agency to contact them and secure acceptance of your plan. 

How to Stay Current With Your Pennsylvania Debt Management Plan

You’ve made big strides by creating and beginning payments on your Pennsylvania debt management plan, so pat yourself on the back. Now, you just have to make your monthly payments promptly until you are debt-free. Mark it on your calendar so you don’t forget. You and your counselor went over your finances to create your plan, so you should know what you can spend and still remain under budget to afford your payments. Do whatever you need to track spending and stick to it – spreadsheets, budget software, traditional ledgers. Also remember to keep setting aside money for expected large expenses as well as emergencies. 

Talk to your credit counselor if there is any change in expenses or coming or notify them if an emergency comes up you can’t afford. Though it sounds tempting in a pinch, using credit to cover an emergency expense could violate your Pennsylvania DMP, so check with your counselor before using any form of credit! This process can be grueling but stick with it. Don’t forget to celebrate progress and mark milestones as your debt begins to shrink – you’ve put in the work and now it’s paying off!

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Pennsylvania Debt Consolidation

Debt consolidation is a broad category of debt relief options that rolls debt together, hopefully at lower interest rates, resulting in fewer payments. A DMP is a form of debt consolidation, but it’s one of many. Most people referencing Pennsylvania debt consolidation actually mean a debt consolidation loan with lower interest rates, like a mortgage refinance or personal loan. Some people also transfer credit card debt with high interest rates to a single, lower rate card. Debt consolidation loans, however, are often not available to people with lower credit scores. Some people even increase their total debt by spending the available credit on accounts they paid off with their consolidation loan!

Pennsylvania Debt Settlement

In both Pennsylvania debt settlements and DMPs, you make monthly payments. However, in debt settlement those payments build up in a fund used to offer lump-sum payments to your creditors. The company won’t contact your creditors until the fund is large enough to a reasonable settlement sum. You could end up paying less than you owe, but your creditor isn’t paid while you fund grows large enough to make an offer. Your creditor also doesn’t have to accept your offer. It’s also likely that during your nonpayment they’ll report your delinquency to credit bureaus, turn your debts over to collection agencies, or even sue you. Debt settlement usually works best if you have enough funds available now to make lump-sum offers, but you must decide if the risk level and potential payoff are best for you. 

Pennsylvania Bankruptcy

In some situations, a Pennsylvania bankruptcy can be the best choice to reset your finances. Bankruptcy is a quick, effective way to eliminate credit card debt and other unsecured debts and give yourself a clean slate. It also gives you a reprieve from collection calls and other harassing tactics collection agencies often use to coerce you into paying. However, bankruptcy has a serious, negative impact on your credit score. It also takes up to 10 years to disappear from your credit report. A Pennsylvania bankruptcy lawyer can answer questions to help you determine if bankruptcy is right for you. If you do decide on bankruptcy but are worried about the expense of hiring a lawyer, Upsolve can help you handle it yourself if you qualify.

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The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

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