How to Become Debt Free With a Debt Management Plan in Rhode Island
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Depending on your financial circumstances your best path to becoming debt-free could be through a Rhode Island debt management plan. Below we will give you more detail on when a Rhode Island DMP may be your best debt solution and how to go about finding a good partner credit counseling organization for assistance and what to expect every step along the way.
Written by Attorney Eva Bacevice.
Updated January 3, 2020
If you are in the midst is financial struggles in Rhode Island it can be hard to know where to look for help. One option you might not know much about is a debt management plan. A Rhode Island debt management plan or DMP is a form of debt consolidation where you work with a credit counseling agency and make one monthly payment so that they can pay your creditors. A Rhode Island DMP can be beneficial because the credit counseling organization will negotiate with your creditors to lower your interest rates and relax late fees. This is particularly effective with credit card companies that usually have high-interest rates. Additionally, your ability to participate in a Rhode Island debt management plan is not tied to your credit score, unlike other debt consolidation loans like credit card balance transfers or taking on new credit for a personal loan. With a Rhode Island DMP, you also have the benefit of streamlining your monthly payments down to a single repayment to pay off your total debt over a two to five-year plan. While this can be a great solution to becoming debt-free, it will depend on your financial circumstances whether it is right for you. For example, a Rhode Island DMP will not include payday loans or secured debts like auto loans. Medical bills are probably only included if the credit counseling organization already has a relationship with the medical provider you owe. There are other downsides to consider including that it can be a big adjustment to get used to one large monthly payment while still maintaining your regular living expenses. This is an important consideration because if you are unable to keep up with your monthly payments, or your financial situation changes and the Rhode Island DMP fails, your overall debt could very well increase as default interest rates, penalties and late fees kick back in.
Is a DMP the Same as a Debt Consolidation?
A Rhode Island debt management plan is a form of debt consolidation, but not the traditional type. Debt consolidation is typically done by taking on new credit, most likely a debt consolidation loan to pay off existing debt, which is either a personal loan or a credit card balance transfer. By paying off your existing credit card accounts you will save in the long run on interest costs. This is dependent, however, on having good or excellent credit to qualify for a loan or balance transfer with a lower interest rate. This will also streamline paying on multiple credit card bills down to a single monthly payment. This differs from a Rhode Island DMP which is not limited to people with only high credit scores. Debt consolidation also differs in that your credit card accounts can stay open, whereas as part of your Rhode Island DMP they will likely be closed. This, of course, increases the risk of you falling into even more debt, simply because you have the available credit to do so. Additionally, there are other risks involved with a debt consolidation. In addition to taking out a debt consolidation loan or balance transfer, you might also pay off your current debts by refinancing your mortgage or opening a home equity line of credit. This can be a huge problem because you are essentially converting unsecured debts (like credit cards) into secured debt (like a car loan or a home loan) where the property acts as security for the debt. If you are unable to maintain your payments on the money you took out to get rid of credit card debts, you could be risking your home to foreclosure.
How to Become Debt Free with a DMP in Rhode Island
Depending on your financial circumstances your best path to becoming debt-free could be through a Rhode Island debt management plan. Below we will give you more detail on when a Rhode Island DMP may be your best debt solution and how to go about finding a good partner credit counseling organization for assistance and what to expect every step along the way.
Find a Credit Counseling Agency
Your first step in exploring whether a Rhode Island debt management plan is right for you is to find a nonprofit credit counseling agency and to meet with a certified credit counselor. Limiting your options to only nonprofit organizations is very helpful because you can easily see if they are accredited by the National Foundation for Credit Counseling (“NFCC”), which is the largest and longest-serving nonprofit financial counseling organization in the United States. Nonprofit agencies that are certified by the NFCC are held to rigorous standards to ensure that you are getting solid financial counseling, rather than for-profit companies that may only be concerned about their bottom line. You can also check with the Rhode Island attorney general’s office, specifically with their consumer protection division, to see if there have been complaints filed against any agencies you are considering or specific scams to look out for. Along the same lines, you can also check with the Better Business Bureau for complaints and overall ratings. There is also important information you can find out by looking at the website or contacting the company before making an appointment. For example, a reputable nonprofit credit counseling agency should offer a wide variety of debt relief solutions and debt management programs, not just push debt settlement which can be costly and often ineffective. You also want to make sure that the credit counselors are certified and trained in the following three areas: consumer credit, money and debt management, and budgeting. If you request informational or educational materials in advance they should be provided for free. If you are asked for money or personal information that is a red flag. Additionally, your initial counseling session should also be free
What to Expect at Credit Counseling
You can expect that your counseling session will involve meeting with a certified credit counselor one-on-one for 45 minutes to an hour. The session will typically take place over the phone, although you can search a bit more to find one where you can attend in person if that is important to you. The session is confidential no matter how it takes place, and your creditors are not notified or involved at this time. You should bring along your recent paycheck stubs and any bills where you are currently making debt payments. Your credit counselor will go over your personal finances in-depth and speak with you about your regular expenses and budget, as well as your financial goals. With your permission, they will show you how to pull your free credit report. At the end of the session, the credit counselor will make a recommendation for your next best steps so that you can start on an action plan to become debt-free. If you are a good candidate for a Rhode Island debt management plan, they will tell you why they believe that is your best debt relief solution.
Making the Decision & Getting Started
No matter how strongly your credit counselor believes that a Rhode Island debt management plan is your best remedy, it is still your decision to make. You should take as much time as you need to feel comfortable with your decision. If you are feeling pressured by your credit counseling agency in making this decision you should treat that as a red flag. You may want to find out additional information before deciding, such as the cost-structure for a Rhode Island DMP. There may be set-up fees or monthly fees or both, and you can ask for that information in writing. You may also want to know how your credit counselor is compensated. If they receive a bonus or incentive for signing up clients, this is another red flag. The largest consideration, however, you will need to make is whether the budget that you and your credit counselor created feels reasonable and whether you believe you and your family will be able to afford and maintain the payments. If you have concerns about that ability you can also meet with a bankruptcy attorney to explore if that might be a better option for you.
Put Together Your Rhode Island Debt Management Plan
Once you have decided to move forward with a Rhode Island debt management plan the next task is to work with your credit counselor to put together your plan. You will need to provide additional information at this point, including bank account information and detailed credit card information, including the total amount due, interest rate and minimum payment. You might be asked to bring along the cardholder agreement for each credit card that was originally mailed to you back when you opened the account. If you did not keep or do not know where to locate that you can search for the cardholder agreement online. Keep in mind that the plan creation is one of the most important parts of the DMP process. This allows you to fine-tune any details and confirm that you have included all of your budget expenses. You can also discuss your plan payment date and frequency to see if there are options that work well with your pay frequency. You can also ask your credit counselor for your first due date and what actions you should take for any debts that become due before the plan is officially set in place. After you and your credit counselor have confirmed all the details in your plan, they will reach out to your creditors to negotiate and get them on board.
Begin Payments
If you are not clear from your prior discussions with the credit counselor, make sure to verify your plan payment due date and the exact amount. You will want to start the plan with good habits such as paying on time or even early. Remember that adjusting to both the budget and making such a large payment will take some getting used to. It might also take time to get used to making your regular expense payments within the new budget. Additionally, it may also take a little time to get approval from all of your creditors, but you can probably get a good estimate from the credit counseling agency based on their established relationships together. In terms of your credit report, there may be an initial negative impact when your accounts are closed as part of the DMP. As you continue to make payments and your overall debt begins to decrease, your credit score will rise accordingly.
How to Stay Current With Your Rhode Island Debt Management Plan
There are some best practices you can put into place for the best chance of success with your Rhode Island debt management plan. First, make certain to set the monthly due date for a date that works with your pay frequency and avoids any other large expenses that you need to pay. Generally, this means avoiding the first of the month. Next, make it a practice to keep your financial counselor in the loop regarding any changes to your income or expenses. Additionally, you may find that it is helpful, especially at the beginning, to track your spending. This can help with sticking to your budget. You should also put into place a system to set aside funds for one-time or non-monthly expenses so that you have the money available when the time comes. If you run into an emergency be sure to let your credit counselor know. Your budget should have an emergency fund built into it, but if you have not set aside enough at the time it arises your credit counselor may have other suggestions to help. Also, feel free to make additional payments if you have a sudden influx of funds like an end of the year bonus or tax refund, but don’t forget to prioritize replenishing your emergency fund if you are forced to use it.
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Rhode Island Debt Consolidation
As we discussed above the most traditional form of debt consolidation is taking on new credit. In a Rhode Island debt consolidation, you would likely take out a debt consolidation loan to pay off your current creditors. Remember that this option tends to be limited to those with good or excellent credit interested in paying off credit card debts. A Rhode Island DMP is different from traditional debt consolidation in that you will be learning new and beneficial financial habits to stay on track going forward. Additionally, at the end of your DMP, you will be debt-free, whereas debt consolidation is substituting a new debt to pay off the hold, so even with a lower interest rate you will still owe and it may take longer than the two to five-year DMP to pay it off in full.
Rhode Island Debt Settlement
Debt settlement is the debt relief solution offered by most for-profit companies. In a Rhode Island debt settlement, you (or an agent on your behalf) can negotiate with your creditors to forgive part of the balance of your debt by making an upfront lump-sum payment. The largest barrier to success with this option is having access to money for that purpose. Additionally, your creditors are under no obligation to agree so you may not be able to resolve all of your debts through this method. Finally, even if you do get them all to agree and can fund those lump-sum payments you will likely face tax consequences on the forgiven debt, whereas with a Rhode Island DMP you are paying off your debt in full, thereby avoiding the tax issues that come with debt forgiveness.
Rhode Island Bankruptcy
If none of the above debt management programs work for you because you are unable to afford any repayment plan you may want to explore bankruptcy as an option. Bankruptcy is a legal remedy where you might walk away from all of your unsecured debts and get a fresh start financially. Most bankruptcy attorneys offer free consultations so this is an option you can explore at the same time you are thinking about a DMP. If you do decide to move forward with Rhode Island bankruptcy check Upsolve’s screening tool to see if you qualify for free assistance throughout your case.
