How to Become Debt Free With a Debt Management Plan in South Dakota
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If it turns out that a South Dakota debt management plan is a good fit for you to become debt-free we can walk you through the steps to find a reputable credit counseling agency as well as what to expect and how to feel confident in your decision. We can also help you to understand how to put together your South Dakota debt management plan, begin payments and stay current throughout your timeline.
Written by Attorney Eva Bacevice.
Updated January 3, 2020
A debt management plan is a form of debt consolidation that is done through a credit counseling organization where you submit a monthly payment to the credit counseling agency and they pay your monthly bills to your creditors. This can be beneficial because credit counseling agencies can negotiate with your creditors to get a better interest rate and often relax late fees. The objective of the plan is to pay off all of your debts in full over a period of time, usually between two and five years. A South Dakota debt management plan (“DMP”) will also have the benefit of simplifying your monthly bill payments because so long as you make your monthly payment to the credit counseling agency, they will take care of making all the separate payments. It also is not dependent on your credit score so you don’t need to worry about qualifying based on that Additionally, the credit counseling agency will work with you at the beginning of your South Dakota DMP to create a monthly budget so that you can afford the agreed repayment plan. A South Dakota DMP works well for credit card debts and potentially medical bills, but does not typically include payday loans, student loans or secured debt like a car loan or mortgage. The accounts for any credit cards included in the plan will be closed as part of the DMP. It can be an adjustment to get used to making a single large payment so you will need to work to stick to the budget you create together and not take on any new debt. If you do need to make a large purchase like a house or a car you should coordinate with your credit counseling agency to make certain it is affordable. If you are unable to complete the plan or miss payments your debt could get substantially worse because of default interest rates kicking in.
Is a DMP the Same as a Debt Consolidation?
A debt consolidation means that you are bringing all of your debts together into one debt management program monthly payment. While a South Dakota debt management plan could be an example of this, more typically a debt consolidation loan will involve taking on new debt with a lower interest rate to pay off the existing debts. This can work effectively when you have mostly (or all) credit card bills at higher interest rates. The new loan could be a personal loan, a credit card balance transfer, a mortgage refinance or a home equity line of credit, although there are additional risks with the last two choices we will explore later. To obtain this new loan at a lower interest rate, you will need to have a good credit score so that does count some people out right away. A debt consolidation loan differs from a South Carolina DMP in that you will not need to close your existing credit card accounts and you will avoid having a debt management plan notation on your credit report. It has risks, however, because you might continue to incur debt once the new personal loan is taken out. Additionally, your single monthly payment will be high so if you miss one it will be very difficult to get back on track. You will also need to review the terms of the new loan very carefully to make sure that the interest rate does not adjust at any point. Finally, if you do decide to do this through a mortgage refinance or home equity loan you are effectively converting from unsecured debts to secured, which can be a huge issue. Once a debt is secured by your home then your home is at risk if you do not maintain your payments. This means that missing payments on your loan to cover credit card debt could put your home at risk of foreclosure.
How to Become Debt Free with a DMP in South Dakota
If it turns out that a South Dakota debt management plan is a good fit for you to become debt-free we can walk you through the steps to find a reputable credit counseling agency as well as what to expect and how to feel confident in your decision. We can also help you to understand how to put together your South Dakota debt management plan, begin payments and stay current throughout your timeline.
Find a Credit Counseling Agency
The first step you can take to narrow down your search for a reputable credit counseling agency is to limit your options to only nonprofit organizations. Sadly there are many for-profit debt settlement companies out there as well who are looking to make money from your bad financial situation, focusing only on their bottom line over your financial health, often pushing debt settlement as their only solution for debt management programs. The nonprofit designation, however, is not enough alone to make certain you are meeting with a reputable organization but it will help, particularly if you verify that the South Dakota credit counseling agency has been accredited by the National Foundation of Credit Counseling (“NFCC”) which upholds rigorous standards. Additionally, you can do a bit of digging online to see if there have been any complaints filed against any of the South Dakota credit counseling organization you are considering. You can check this with the South Dakota attorney general’s office specifically within the South Dakota Consumer Protection Division You can also search for complaints and check ratings with the Better Business Bureau. Once you have narrowed your list of options down to a reasonable amount you can also call them to find out a bit more about their range of services before making your decision, which could include financial counseling and offering debt solutions. You can verify that the initial session is free and request that they send you some free informational or educational materials. If they attempt to charge you for either the credit counseling session or the materials, whether by asking for money or personal information, you should treat that as a red flag and continue your search elsewhere. As you are looking for a South Dakota credit counselor you can verify that they are certified and trained in the three main areas; consumer credit, debt and money management, and budgeting. You can also ask whatever other questions may help you feel comfortable, whether that is what documents to bring along to make the session as effective as possible, or whether you want to know more about the cost structure and options for those who cannot afford ongoing fees.
What to Expect at Credit Counseling
You can expect that your South Dakota credit counseling session will be one-on-one with your certified credit counselor and will last anywhere from a half-hour to an hour. Most South Dakota credit counseling services will offer appointments over the phone. If you prefer to meet in person, it will take a bit more legwork to find a local option. You should plan to bring along your most recent paycheck stubs as well as your creditor bills that show minimum payment, interest rate and total amount due. You should also bring along or be prepared to discuss your other monthly bills, such as rent or mortgage, car loan if any, and utilities and household expenses. With your permission, they can help you pull your credit report. The credit counseling is confidential and your credit counselor will be looking to get a complete picture of your current finances as well as your financial goals and will wrap up with an action plan for how to get started toward debt relief. Generally, your credit counselor will recommend either a debt consolidation, a debt management plan, or bankruptcy. We will touch on all three options later in this article, but the focus will be for those who are good candidates for a debt management plan
Making the Decision & Getting Started
If it turns out that your credit counselor believes that you are a good candidate for a South Dakota DMP, it is still completely up to you whether to decide to move forward with one. A reputable nonprofit credit counseling agency will understand this and allow you the time you need to make a decision. If the credit counseling agency is pressuring you to make a decision quickly, that is not a good sign and it’s likely to your benefit to move on to another organization. There may also be additional information that impacts your decisions, such as finding out the set-up fees and monthly fees. You might also inquire how the credit counselor is paid. If they receive incentives or bonuses for signing up new clients that is also a bad sign. You may also want to confirm that the credit counseling agency has a relationship already established with your existing creditors. The larger decision, however, will be about whether you can stay within the agreed-upon budget to maintain the monthly payment necessary to cover all of your debts. Even though you will be saving money over the life of the plan, the monthly payment is likely to be pretty significant and you need to be realistic about whether that is something you and your family can commit to doing. Keep in mind that if you decide to go into a South Dakota DMP and then are unable to maintain the payments you could end up in worse financial problems because if the plan fails all the prior terms kick back in so you will be facing an increase in interest rates, late fees and penalties. It is important to think through all of your options before making this commitment, so if bankruptcy is also on the table you may want to speak with an attorney about that as well.
Put Together Your South Dakota Debt Management Plan
Once you have decided to move forward with your South Dakota debt management plan you will need to work with your credit counselor to get the plan set up properly. You will need to provide additional paperwork and information to your credit counselor so that they have all the details about your personal finances that they need to properly negotiate with your creditors. This will likely include your bank account(s) information and your detailed credit card information including the cardholder agreement for all of your cards. This is something that you likely received in the mail back when you opened the card. If that’s not something that you kept or can find, you should be able to find the information at the online credit card agreement database. Taking the time now to make sure the plan is set up well is very important as now is your chance to fine-tune the details of your DMP. You will want to make sure the payment date works with your income schedule. It will also give you a chance to add in any budget items you may have missed originally. You can also ask if it is possible to make the payments bi-weekly if that lines up better with your income. You also want to be clear on when they start paying your creditors on your behalf, and if there are bills due in the meantime what you should do. Your creditors will need to accept the plan as well to move forward, but your credit counselor will not present it to them until you are both in agreement that it can work for you.
Begin Payments
Ideally, it should be clear from your South Dakota debt management plan what the due date is and the amount of your payment, but if anything is unclear, you should speak with your credit counselor immediately. You’ll want to start your South Dakota DMP with good habits, such as paying on time or even early, which will be easier to maintain over time. You also will want to make sure to be following the budget you helped create to stay on top of other expenses not included in the plan. It can take a little time to get all of your creditors on board but your South Dakota credit counseling agency should have a good idea of the timeline based on their relationships with your creditors. When creditors sign off on your plan they will close your account(s) to prevent you from getting into further debt. This will have a negative impact on your credit score at the time but bear in mind that you’re actively improving your credit rating as the balance on your overall debt goes down.
How to Stay Current With Your South Dakota Debt Management Plan
Staying current on your South Dakota debt management plan is vital for its success and reaching your financial goals. There are practices you can put in place to help ensure that your payments are made timely. First, you should set your due date for a date when no other large payments are due, which most typically is the first of the month. If anything changes with your income or monthly expenses, reach out to your credit counselor right away to let them know. You may want to start tracking your expenses to help stay on budget. You should also set up a system for setting aside money for expenses that are not always monthly, such as back to school clothes for the kids. By setting aside a little money every month you can make sure that you will stick to your budget and have the funds available for these irregular expenses. If you encounter an emergency or otherwise unexpected large expense, again you should reach out to your credit counselor. They may very well have a recommendation for your particular circumstances. Also, keep in mind that your budget should have built into it a method for setting aside some money to create an emergency fund. If you later have an influx of extra funds (perhaps a tax refund) don’t forget to replenish your emergency fund before making extra payments or otherwise using that money.
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South Dakota Debt Consolidation
Following a debt management plan is a form of debt consolidation, but not the typical kind. Traditionally a South Dakota debt consolidation would involve taking out new debt, generally a loan, to pay off your existing credit card debts, and streamline down to a lower monthly payment at a lower interest rate on the total debt. A South Dakota debt consolidation loan can be a great debt relief option for those who have good or excellent credit and can get favorable terms on a consolidation loan but is not helpful for other debts, such as student loans.
South Dakota Debt Settlement
Debt settlement also differs from a debt management plan. A South Dakota debt settlement would involve paying off a percentage of your total debt owed and walking away from the remainder that you owe. Usually, the only reason your creditor may agree to work with a debt settlement company is that they are receiving a lump sum payment for the agreed-on percentage. This can get tricky, however, since you may not have access to enough money to fund the lump sum payments. Additionally, creditors do not have to agree to any settlement, so while you might be able to get some debts addressed it may not achieve your goal of being debt-free.
South Dakota Bankruptcy
There are also circumstances when your best options may be to pursue bankruptcy. If you can’t maintain your ongoing monthly living expenses, let alone repay debts, then a South Dakota bankruptcy may be your best bet. With bankruptcy, you can walk away from some (or all) of your unsecured debts. You can always seek a free consultation with an attorney to fully explore your options after having your credit counseling session. If bankruptcy is the best path for you then you can go through Upsolve’s bankruptcy screener to see if you qualify for assistance through your bankruptcy case at no cost to you.
