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

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In a Nutshell

Figuring out the right debt relief solution is dependent on your financial circumstances and goals. Below we will help you determine whether a Texas debt management plan is right for you, and if so, how to make sure you are getting the best possible assistance and what to expect throughout the process. 

Written by Attorney Eva Bacevice
Updated March 26, 2021

If you are struggling financially in Texas you are not alone. The Lone Star state’s poverty rate is just above the national average, which means that a lot of Texans are having trouble making ends meet. When you’re trying every day just to pay the bills it can be hard to even take the time to look for help. There are real debt relief options out there, however, that can help you get back on your feet. One of these debt solutions is called a debt management plan, or “DMP.” A Texas debt management plan is a form of debt consolidation that can have you debt-free in two to five years and get your personal finances back on track. With a Texas DMP, you work with a nonprofit credit counseling agency to create a plan where you make one monthly payment that is distributed out to your creditors. A Texas debt management plan is beneficial in important ways beyond just making your monthly payments more streamlined. The credit counseling organization will negotiate on your behalf with your creditors to lower interest rates and relax late fees. They will also work with you to create a budget to afford and maintain the payment for the life of the debt management program which will help with good financial habits going forward. A Texas DMP is also a way to consolidate debts that is not tied to your credit score, so it is an option for people with bad credit. A Texas debt management plan will include mostly credit card debt, and occasionally medical bills if the credit counseling agency has an established relationship with the medical provider. It will not include payday loans or secured loans like a car loan. Whether a Texas debt management plan is the best debt relief solution for you will depend on your financial situation. It does have risks to consider as well, such as getting used to making one large monthly payment while still maintaining your regular expenses. Additionally, if you are not able to complete your Texas DMP or maintain your payments and the plan fails, you could end up in a worse financial situation than before as default interest rates, late fees and penalties kick back in. 

Is a DMP the Same as a Debt Consolidation?

A debt consolidation is a way to bring together all of your debt payments into one monthly payment. While a Texas debt management plan is one form of debt consolidation, the traditional format usually involves taking on new credit, in the form of a debt consolidation loan with a lower interest rate, to pay off your existing credit card bills. Since credit card companies typically have high-interest rates this can be a very effective method of cost-saving if you qualify for a lower interest rate. It is, however, dependent on having an excellent or very good credit score to qualify for that lower interest rate on the personal loan. In addition to taking out a debt consolidation loan, other methods include credit card balance transfers, mortgage refinance or taking out a home equity line of credit. These other methods of debt consolidation, however, contain risks. A credit card balance transfer, for example, might get you a lower interest rate but it may only be for a limited promotional period before the APR increases, possibly even higher than before. Refinancing your mortgage or taking out a home equity line of credit will essentially convert your credit card debt (which are unsecured debts, meaning not tied to anything) into secured debt that could now put your home at risk of foreclosure. Additionally, debt consolidation does nothing to limit taking on new debt, unlike a DMP where your credit card accounts are closed. So if overspending is part of the problem there is nothing to stop it from continuing. 

How to Become Debt Free with a DMP in Texas

Figuring out the right debt relief solution is dependent on your financial circumstances and goals. Below we will help you determine whether a Texas debt management plan is right for you, and if so, how to make sure you are getting the best possible assistance and what to expect throughout the process.

Find a Credit Counseling Agency

If you are considering a Texas debt management plan it is important to find a reputable nonprofit credit counseling agency with certified credit counselors to help you through the process. You should limit your search to nonprofit organizations because if they are accredited by the National Foundation for Credit Counseling (“NFCC”) so you can be assured that they are held to rigorous standards. This is important to verify because there are a lot of for-profit companies that are focused on their bottom line and not necessarily looking out for your best interests. Often these for-profit companies will push for debt settlement as their only solution, which can be costly and all too likely to be ineffective. In addition to checking with the NFCC, you can also look to the Texas attorney general’s office in their consumer protection division to see if there are scams to avoid or complaints filed against any of the companies you are considering. You can also research companies with the Better Business Bureau to check for complaints and see their overall rating. There is also a good deal of information you can learn from a credit counseling agency’s website. You can check to see if their credit counselors are certified and trained in consumer credit, money and debt management and budgeting. You can also make sure that they offer a wide range of services including financial counseling and different debt management programs. You can request free informational or educational materials before making an appointment. If they try to charge you or ask for personal information in exchange that is a red flag and you should continue to look elsewhere. You can also call and ask any other questions that could raise red flags, such as confirming that the initial counseling session is free, and asking how the counselors are compensated. If they receive a bonus or incentive for signing people up that is a bad sign. 

What to Expect at Credit Counseling

You can expect that your credit counseling session will be one-on-one with a certified credit counselor and last about 45 minutes to an hour. More than likely the session will take place over the phone, although if you would rather meet in person you can look for a local agency which offers that service. You should bring along your most recent paycheck stubs and your creditor bills or detailed information including minimum payments and interest rates. The session is confidential and no creditors will participate or even be informed that it is taking place. With your permission, your credit counselor can show you how to obtain a free copy of your credit report. They will take an in-depth look into your finances, income, expenses, and debts, as well as speak with you about your long-term and short-term financial goals. After your session, the credit counselor will make a recommendation for your next best steps as an action plan for achieving your financial goals. If you are a good candidate for a Texas debt management plan, that may be their recommendation. 

Making the Decision & Getting Started

The decision of whether to enter into a Texas debt management plan is up to you. It is a big decision for you and your family and you should not feel rushed. If you are getting pressure from the credit counseling agency to commit to a Texas DMP, that’s not a good sign. You are the one who will be making the large monthly payment. You are the one who will be living within the budget you created. Remember, if the Texas DMP fails you will likely find yourself in a worse financial position as default interest kick back in along with penalties. It has to work for you and you need to feel confident in your decision. There are several things you can do to increase your comfort level. First, you can always explore other options. If you are curious to know more about bankruptcy and whether that is a viable alternative for you, you should feel free to make an appointment with a bankruptcy attorney who offers free consultations. Next, just like before setting your appointment you should feel empowered to ask any additional questions you have. For example, you may want to know about the cost structure for your Texas DMP. Are there set-up fees? If so, how much? Are there ongoing monthly fees to administer the plan? Again, how much? Are there options if you feel you cannot afford either or both of these fees?

Put Together Your Texas Debt Management Plan

Once you have decided to move forward with your Texas debt management plan the next step is to work with your credit counseling agency to create and put the plan into place. At this point in the process, you will need to provide additional information to your credit counselor, including bank account information and detailed credit card information. For each of your credit card accounts, you should include the credit card agreement that you received back when you opened the account. If you did not save this information or cannot locate it you can probably find it online in the credit card agreement database. This is also a great time to fine-tune the details. Make sure you have included all of your expenses in your budget. Confirm from your credit report that you have included all of your creditors in the repayment plan. Also, think about the plan payment due date. Does that work for you with your pay schedule and frequency? If you are paid bi-weekly is there an option to make bi-weekly payments instead? If not, do they have recommendations for how to make one large payment work for you? You can also find out about the timing for putting the plan in place. When will your creditors be approached to sign on? What should you do about payments that come due in the meantime? 

Begin Payments

If you have any questions about your due date and payment amount check with your credit counselor right away. You will want to establish good habits for your Texas DMP for paying on time or even early. It will also take a little time to get used to living within your new budget and maintaining your regular expenses. After you have signed off on the plan and started making payments your credit counseling agency will reach out to your creditors to get their agreement as well. If you would like to know when each creditor signs on let your credit counselor know, otherwise they can give you a decent estimate for how long this part of the process takes because of their established relationships with creditors. Once everything is in place, your creditors will close down your credit card accounts as part of the Texas DMP, which will have an initial negative impact on your credit score. As you continue to make your payments, however, and your total debt begins to go down your credit score will rise accordingly.

How to Stay Current With Your Texas Debt Management Plan

There are also some best practices you can follow to stay current and successfully complete your Texas debt management plan. Make sure that when you are setting your Texas DMP due date you are not choosing a payment date that has another large payment due already. Usually, this means avoiding the first of the month. Remember to let your credit counselor know if anything changes concerning your monthly income or expenses. It may make sense, especially at the beginning while you adjust to your budget, to track your spending. It’s also good practice to set up a system to set aside money for a one-time or irregularly occurring expense to make sure you have the funds available when that expense needs to be paid. This can be similar to an emergency fund that should already be built into your budget. If you do have an emergency make sure to let your credit counselor know right away so they are in the loop and can potentially offer suggestions or assistance. If you come into extra money, such as a tax refund or bonus at work, you can feel free to make additional payments into your plan to complete it faster, just be certain to always replenish your emergency fund first. 

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Texas Debt Consolidation

A Texas debt management plan is a form of debt consolidation but is not the most common format. Traditional debt consolidation involves taking on new credit, usually through a personal loan, to pay off existing debts. You might enter into a Texas debt consolidation if you are dealing primarily with credit card payments with high-interest rates. If you have good or excellent credit you can qualify for a new loan at a lower interest rate that will save you money over time in the interest charges alone. It does not include all types of debts and may not be the best solution if you are trying to work on overspending because unlike in a Texas DMP your credit card accounts will remain open so there is nothing to stop you from taking on additional new debt. 

Texas Debt Settlement

Another debt relief option you can pursue is a debt settlement. With a Texas debt settlement, you (or an agent on your behalf) would negotiate directly with your creditors to pay off a portion of your total debt to that creditor to wipe out the entire debt. Creditors will only agree to this arrangement if you can pay the agreed portion upfront in lump-sum to forgive the remaining debt. So this option only works if you have access to money to make those lump-sum payments. This is also the area of debt relief that has the most risk of untrustworthy agents so it is important to make sure you are working with a reputable organization or attorney. Keep in mind also that creditors are under no obligation to agree, so you could find yourself in a situation where some agree but others refuse so there is no guarantee this will achieve a goal of being debt-free like a Texas DMP. Additionally, there are tax consequences for any forgiven debt that you will need to take into consideration.

Texas Bankruptcy

Finally, keep in mind that exploring bankruptcy is also always an option. It is perfectly fine to consult with a bankruptcy attorney offering a free consultation after speaking with your credit counseling agency about your debt relief options. In a Texas bankruptcy, you may be able to walk away from all of your unsecured debts (credit cards, medical bills, etc.) and get a fresh financial start. If you do decide to file a bankruptcy you can check out Upsolve’s screening tool to see if you qualify for free assistance throughout your case.

Written By:

Attorney Eva Bacevice


Eva G. Bacevice graduated from the University of Michigan Law School in 2001. She practiced law for close to a decade in the area of consumer bankruptcy. She now works in higher education as an Academic Advisor for undergraduate students at the Stephen M. Ross School of Business,... read more about Attorney Eva Bacevice

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