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How to Become Debt Free with A Debt Management Plan in Tennessee

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In a Nutshell

You’ll have to take a few steps to start a debt management program. This process begins with assessing your financial situation and contacting a credit counseling agency.

Written by Upsolve Team
Updated March 26, 2021

Tennessee debt management plans can bring peace of mind to those with overwhelming debt problems in the Volunteer State. No matter if you live in Memphis or the Smoky Mountains, you can find relief when credit cards, medical bills, and other unsecured debt gets out of hand. Debt relief solutions include Tennessee debt management plans (DMP). A DMP is a form of debt consolidation. Debt consolidation combines credit card debts, medical bills, and other unsecured debts, so that they are managed under a single account. This process allows consumers to pay combined debt via one monthly payment instead of making multiple payments to multiple creditors. With a Tennessee DMP, you will make your monthly payment to a credit counseling agency. The agency will serve as the administrator of your Tennessee DMP, when it takes control over distributing the funds of your single monthly payment to your numerous creditors. The credit counseling agency will also try to negotiate with your creditors to secure you lower interest rates than you are paying now. 

A DMP can be used as part of a comprehensive solution designed to help you become debt-free. A DMP can also help improve your creditworthiness over time. Your credit score generally improves when you pay off your debts. With a higher credit score, you can get lower interest rates when you take out a car loan or mortgage. However, it’s important to know that Tennessee DMPs aren’t the best debt management solution for everyone. Tennessee debt management plans are best if you have unsecured debts like credit card debt and medical bills. Tennessee DMPs aren’t generally a good fit for student loans, payday loans, or car loans. Also, having one large payment each month takes some adjustment. Take time to budget for that payment before starting the Tennessee DMP process. It is important to complete your plan once you start it, or your credit score could suffer. Maintaining a DMP takes some work, but relief from overwhelming debts will be worth your effort.

Is a DMP the Same as Debt Consolidation?

A Tennessee debt management plan is a form of debt consolidation. The other kind of debt consolidation involves securing a new line of credit and using it as a balance transfer. Each of these forms of debt consolidation are similar in a lot of ways. Each involves combining your debts into a single account that is managed by making a combined monthly payment. Each approach results in paying off your outstanding credit card bills and other unsecured debt. Without a Tennessee DMP, the debt consolidation process requires you to take out a debt consolidation loan to pay off your unsecured debts. Debt consolidation loans could involve securing a home equity line of credit or a significant personal loan. This new line of credit acts as a balance transfer, in that it pays off all of your various accounts to combine your debt into a single account. Tennessee debt management plans, on the other hand, use credit counseling agencies as a go-between. If you use a DMP, you’ll submit your monthly payment to a nonprofit credit counseling agency, which will then make payments to your existing creditors based on the terms of a previously agreed-upon plan. 

You’ll benefit from securing a debt consolidation loan (as opposed to constructing a DMP) if you have a good credit score. Better credit scores get you lower interest rates on consolidation loans. Pursuing a debt management plan is a better idea if you have bad credit, as poor credit won’t allow you to secure favorable debt consolidation loan terms. You don’t need great credit for a DMP. Whether you choose to consolidate your debt via a DMP or a debt consolidation loan, you can succeed with debt consolidation if you do some research, stick to a budget, and make your monthly payments on time.

How to Become Debt Free with A Debt Management Plan in Tennessee

You’ll have to take a few steps to start a debt management program. This process begins with assessing your financial situation and contacting a credit counseling agency.

Find a Credit Counseling Agency

You’ll want to do some research before choosing a credit counseling agency. Find a few credit counselors to compare. You’ll want to work with an agency that is an accredited nonprofit organization. If an agency is accredited, they have to meet higher quality standards than for-profit operations and non-accredited entities do. The COA is the organization that does the accrediting. The National Foundation for Credit Counseling, or NFCC, is the longest-running nonprofit financial counseling organization in the United States. NFCC member agencies must be accredited. You can find out whether a credit counseling agency is accredited by visiting the NFCC and COA websites. Additionally, you’ll want to check the credit counseling agency’s reputation with the Tennessee Attorney General’s office and the Better Business Bureau. Look for agencies without significant complaints. Also, take the time to find out about any fees or costs the credit counseling agency might charge. The initial session should always be free. Make sure the agency you choose doesn’t charge you for your free credit counseling session. 

The next step in finding an agency worth your time involves finding out what the agency needs from you prior to your credit counseling session. During your initial credit counseling session, ask your counselor questions. Find out what the agency will do if you can’t afford the fees the agency charges for managing your plan. Ask how the counselor is compensated. Avoid counselors who make a commission or bonus if you sign up. Get some free informational materials from your credit counselor before signing up. These materials will help you review debt relief options before committing to any one course of action. Finally, have your counselor explain what sets them apart from other agencies. Find a counseling agency that offers services that will benefit you. For example, you may want an agency that offers online access to your account or post-counseling services.

What to Expect at Credit Counseling

Before you begin, take the time to prepare for your free credit counseling session. Put together some of your financial information. Look for some recent paycheck stubs. Pull a free copy of your credit report. Gather your credit card bills and medical bills. These statements should include your account number, amount owed, minimum payments, and interest rates. Gather recent bank account statements and figure out your ongoing monthly payments. This information is necessary to get an overview of your financial picture so you can effectively discuss your situation with the counselor. During your credit counseling session, you’ll talk to a certified credit counselor in person or over the phone. Your counseling session will be confidential. This reality allows you to have an open conversation about your financial situation. A free credit counseling session lasts about an hour. During this time, your counselor will assess your finances. You’ll give the counselor an overview of your income, expenses, and debt. You’ll work together to establish long-term and short-term financial goals. You’ll create an action plan to achieve those goals. Depending on your financial situation and your debt relief goals, the credit counseling agency might recommend a debt management program.

Making the Decision & Getting Started

You’ll be making a major commitment if you opt to enter into a Tennessee debt management plan. Even if a credit counselor says that your situation is a good fit for a debt management plan, you’ll want to take your time to decide whether this course of action is right for you. A good credit counseling agency will not pressure you into making a decision. The choice is up to you. Make sure you have all the information about how your debt management plan will operate. Ask the counselor about its set-up fee and monthly fee. Find out if the counselor gets any incentives for signing you up for different options. You don’t want to be pressured because they get a bonus to sign you up. 

You’ll want to honestly determine whether you can stick with a long-term plan. If you’re not good at keeping a budget, you may want to try some alternative debt relief options. You may have to cut spending and other discretionary expenses. Find out if your family is okay with the approach you’re considering. Commit to making the monthly payment on time. Missing payments could result in additional fees or a worsening financial situation. You may even want to investigate other debt relief options available in your area. Depending on your situation, you may want to speak with a bankruptcy attorney. Bankruptcy is a more comprehensive approach to debt relief and it may be the most appropriate option for your situation. If, after exploring your options and weighing the pros and cons of each, you decide to move forward with a DMP, let your credit counselor know so that they can begin negotiating with your creditors.

Put Together Your Tennessee Debt Management Plan 

Your credit counselor will ask for additional information once you commit to a Tennessee debt management plan. For example, your credit counselor might ask for your cardholder agreements from each of your credit card accounts. A cardholder agreement contains the terms and conditions for each credit card. This includes information like interest rates and payment terms. Your credit counseling agency needs to understand any terms that could affect your debt management plan. You can usually find copies on your credit card company’s online portal. You received a cardholder agreement when you were sent your credit card. For sample agreements, check out the Consumer Financial Protection Bureau’s website

Working out reasonable terms for your Tennessee DMP will help to ensure that this process is ultimately successful. Work out the details and create a due date that makes sense for you. Get details from your counselor about how often and when plan payments will come due. If allowed, you may be better off making bi-weekly payments that line up with your paydays. After you’ve prepared a workable plan, your creditors will then have a say. Your credit counseling agency will work with your creditors to work out favorable terms whenever possible. Once the details are settled, you’ll start making payments.

Begin Payments

Talk to your credit counselor about your repayment plan amount and the due date for your payment before you finalize the terms of your DMP. Make sure you understand the exact dates and amounts you will pay. Your credit counseling agency will reach out to each of your creditors. It will establish the plan with your creditors and work out agreements with them. Ask your credit counseling agency how long this process will take. Credit counseling agencies have established relationships with these lenders. They should also be able to give you updates as they reach agreements. Stay in contact with your credit counselor throughout the process. After your payments begin, your credit score may initially dip as creditors may begin to close your accounts as part of the Tennessee DMP. Once your total debt decreases, your credit score will begin to rise. The debt management plan may be reflected on your credit report, but it won’t impact your overall score. Keep payments going to continue to build a favorable credit score.

How to Stay Current with Your Tennessee Debt Management Plan

Do everything you can to keep your Tennessee debt management plan payments current. Your due date should be set to a time when you’ll have funds available. Don’t set due dates at the same time that other large monthly expenses (like car loan payments or rent) are due. You should also prepare for unforeseen financial issues that may pop up while you’re paying off your debt management plan. Try to put aside a little bit each month as savings in case of unexpected expenses. Use online budgeting tools to keep you on track. Review the monthly debt management plan reports from your credit counseling agency. Celebrate when you hit important milestones. If you have a financial emergency, let your credit counselor know. If you have to use emergency funds, replenish them as soon as you can. If you need to use a credit card to pay for emergency expenses, pay it off as soon as possible to avoid getting back into debt. Keeping your finances on track will help to ensure that you can make your DMP payments reliably each and every month.

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Tennessee Debt Consolidation

As mentioned earlier, a Tennessee debt management plan is a form of debt consolidation. Debt consolidation takes various unsecured debts and combines them into a single account. This allows the debtor to make one monthly payment on all of their combined debt. Loan-based debt consolidation works best when you have good enough credit to secure a debt consolidation loan with favorable terms. There are several options for Tennessee loan-based debt consolidation. For example, a credit card balance transfer may offer a good interest rate but that interest rate may increase when the promotional period ends. A home equity loan will feature a longer repayment term but your house will be at risk if you miss payments. Take time to investigate all your debt consolidation options as potential alternatives to a DMP for debt relief to ensure that you’re making the best decision for your situation. 

Tennessee Debt Settlement

Debt settlement works to relieve debt by allowing an individual to pay back only a portion of what they owe on a specific account. Tennessee debt settlement may be a good option if you have funds you can use as lump-sum settlement amounts. Debt settlement will not be a good option if your main priority is to improve your credit score quickly, as your credit score will take a temporary hit because you aren’t paying back everything you owe. Do your research before choosing a debt settlement company to work with, as many for-profit debt settlement companies are scam artists. Check their reputations with the state attorney general or Better Business Bureau before committing to work with any particular company.

Tennessee Bankruptcy

Bankruptcy is a debt relief solution that can eliminate your eligible unsecured debts. This process should be considered carefully because bankruptcy can have an impact on your overall creditworthiness for a few years. On the plus side, a successful bankruptcy Tennessee bankruptcy process will result in significant debt relief. Consult with a bankruptcy lawyer to see if your financial situation is a good fit for bankruptcy. If you can’t afford to work with an attorney, Upsolve may be able to help you file for Chapter 7 bankruptcy at no cost. Use Upsolve’s bankruptcy screener to see if you qualify for help with a Chapter 7 bankruptcy

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