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

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Written by John Coble, Esq.  
Updated January 3, 2020

Summary

This part of the guide will focus on the different steps to achieving a successful Virginia DMP. Then, this guide will finish by looking at some other debt-relief options for you.

Being the son of one of the signers of the Declaration of Independence and a member of one of Virginia's most prominent families didn't shield President William Henry Harrison from financial distress. When his father died, he had to leave medical school because he no longer had enough money to continue. He married young and had ten children. Raising such a large family was a financial burden. When he served as Ambassador in Columbia, his crops failed while he was away from his farm. When he became president, he was near insolvency. Creditors were after him. One has to wonder if the stress of fending off creditors wasn't the reason Harrison's immune system failed him when he fell ill from getting rained on a couple of weeks after his inauguration and died of pneumonia only a month into his presidency. He had the shortest term of any American president. Today, many Virginians can relate to William Henry Harrison. The cost of raising a family is high. The cost of college is a nightmare in itself. Many Virginia farmers can relate to his crop failure at a time when trade wars are leaving Virginia crops rotting in the fields.

Whether you’re suffering from the high cost of living in the D.C. suburbs or are an unemployed coal miner in the southwestern part of the state, Virginians from all walks of life are feeling financial distress. We are here to provide you with affordable solutions to your financial situation.

One solution we can help you with is a Virginia debt management plan (DMP). A Virginia DMP uses a credit counseling agency to negotiate repayment plans with your creditors at lower interest rates. The DMP pays your included total debts in full. You pay one lower monthly payment to the credit counseling agency that's less than the combined minimum payments of the debts you include. The credit counseling agency then pays each of your creditors. It’s a big advantage for you to have only one payment to replace the included debts. In three to five years when you've completed your Virginia DMP, you'll be free of the debts included in the DMP.

Is a DMP the Same as a Debt Consolidation?

A debt consolidation uses a loan to pay off your debts, so you have only one monthly debt payment. Debt consolidation loans can be credit card balance transfers, personal loans, or home equity lines of credit. Debt consolidations are a good option for you if your credit score, sometimes referred to as your FICO score is high enough to get a low-interest rate loan that is large enough to cover all the debts you want to include. Consolidations can be risky. If you use a home equity line of credit to consolidate your debt and you default, you could lose your home. Since the debt consolidation loan is combining many of your debts, it’s likely a large payment. If you fall behind on the debt consolidation loan and you incur late fees, it can be hard to catch up.

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How to Become Debt Free with a DMP in Virginia

This part of the guide will focus on the different steps to achieving a successful Virginia DMP. Then, this guide will finish by looking at some other debt-relief options for you.


Find a Credit Counseling Agency

It’s important that you use a good credit counseling agency. Make sure it’s a nonprofit credit counseling agency. One way to make sure you have found a reputable credit counseling firm is to make sure the counseling agency is a member of the National Foundation for Credit Counseling (NFCC). The NFCC is the oldest organization in the country representing nonprofit credit counseling companies. It's a good idea to check the Better Business Bureau rating for any credit counseling firm.

Your initial credit counseling session should always be free. Check with the counseling agency before the session to determine what you need for the session, where the session will occur and how long it will take. With most credit counseling organizations, the initial session will take forty-five minutes to an hour. All credit counseling companies don't do things in the same way. Some agencies may conduct the session by phone. Others may have the session in person or by an online meeting. It's okay to ask how the counseling agency pays its counselors. While credit counseling, sometimes referred to as financial counseling is free, extra services like Virginia debt management plans aren't free. Yes, the agency may be a nonprofit but it still has to pay its employees. Make sure the fee the agency charges is competitive with what other agencies charge.

What to Expect at Credit Counseling

At your first credit counseling session, you will meet with a trained and certified credit counselor. This is no customer service representative. Pay close attention to what the counselor says. They deal with cases like yours every day. They gain much insight from the experience of dealing with so many people's personal finance situations. The counselor will assess your income, expenses, and debts. You and your counselor will set short and long term financial goals for you. Your creditors have no participation in this initial session. This is a confidential meeting between you and your counselor. At the conclusion of your first credit counseling session, your counselor will recommend a debt solution for you. The recommended debt relief option may be a Virginia debt management plan, but it also may be another debt relief option.

Making the Decision & Getting Started

Whatever your counselor recommends, you have the right to take the time you need to think it over. If your counselor pressures you to make a particular decision, this may not be the right credit counseling firm for you. You need to feel comfortable with the chosen solution. Treat your decision to enter into a Virginia debt management plan as a serious matter. If your counselor has recommended a Virginia DMP, ask what the setup fee and the monthly fees are. These are the fees that compensate the counseling agency for their services. Make sure that you can afford these fees. Ask if the credit counseling firm pays the counselor a commission for steering you into a particular debt solution. If the answer is yes, find another credit counseling company. Such commissions will present too much temptation for the counselors to put their interests before your interests. It's important to know what kind of relationship the counseling agency has with your particular creditors. Over years of dealing with creditors, credit counseling firms develop relationships with the creditors. These relationships can ease the negotiation process and make the outcome with each creditor much more predictable.

Put Together Your Virginia Debt Management Plan

To prepare your Virginia debt management plan, your counselor will want each of your written agreements you have with the credit card companies. These agreements contain your original terms. Your credit counselor needs to know these terms because now they are trying to negotiate better terms for you, such as a lower interest rate. If you're like most people, you have either lost or thrown away your credit card agreements. This isn't a problem. You can use the Consumer Financial Protection Bureau's Credit Card Agreement Database to get a copy of your agreements.

Make sure to ask your counselor any questions you may have before the Virginia DMP starts. One good question is can you have your monthly payments split between your paydays? Can the credit counseling firm set it up, so they take an automatic payment from your checking account? Are these good ideas for you? Try to set up your debt management program payment dates and methods so it's the best fit for you. Ask your counselor when they will start paying your creditors. The answer is usually that they start negotiating with your creditors as soon as you have signed off on the DMP and have started making payments on the DMP. So, it will be some time after you start paying the credit counseling company before they start paying your creditors. This is normal. They aren't going to start working until they start getting paid.

The creditors get a say about your Virginia DMP when they negotiate with your counseling agency. The credit counselors usually have the upper hand and the creditors know this. The creditors know that you can always file bankruptcy. The creditors paid through a DMP have unsecured debts such as credit card bills and medical bills. In any chapter of bankruptcy, these creditors are the last to get paid and they usually get little or nothing. These creditors would prefer to get paid in full at a lower interest rate through a DMP than to get nothing.

Begin Payments

The most important part of a Virginia debt management plan is to make your payments on time if not early. Use the early months of your Virginia DMP to set up a system to keep your budget on track. Get in the habit of using this system. Stay in touch with your credit counseling agency. If you want creditor by creditor updates on which ones have accepted your DMP talk to your counselor. Often, the credit counseling firm will send you a monthly statement that shows who is getting paid what. Most of your creditors will report the existence of your DMP to the consumer credit reporting agencies. This will have a small negative impact on your credit score. Most of the impact on your credit report will come from the closing of the accounts and the loss of available credit.

How to Stay Current with Your Virginia Debt Management Plan

You also need to set aside some money monthly for emergencies. This needs to be part of your budget. A Virginia debt management plan will last three to five years, and you can bet that over that amount of time, you will have a least one financial emergency. It’s a good idea to track your expenses and budget with online tools such a Mint. You can link these tools to your bank accounts and credit card accounts, so they receive automatic updates. Using mobile banks such as Chime or Acorns can make savings automatic. These no-fee mobile banks will round your debit card charges up to the nearest dollar and put the change into your savings account for you. It's a good idea to make extra payments when you are within your budget and you have enough funds in your savings account for expected and unexpected future expenses. Getting ahead on your Virginia DMP when you can give you some slack should you experience an unexpected economic downturn such as unemployment.

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Virginia Debt Consolidation

A Virginia debt consolidation uses a loan instead of a credit counseling company to combine your debt into one monthly payment. If your credit score is high enough to get a favorable loan that allows you a better interest rate than the original debts and is large enough to cover all your credit card debts, a debt consolidation may be the best option for you. Remember not to use the credit cards that you paid off with the debt consolidation loan to incur new debt.

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Virginia Debt Settlement

In a Virginia debt settlement, you pay a large lump sum to each of your creditors to settle your debts for less than the full amount due. Since you aren't paying the debts in full, this will hurt your credit. For this reason, a debt settlement is best for you if you already have bad credit and aren't concerned with the debt settlement harming your credit report. It's unusual to have bad credit and at the same time, have enough money to make these large lump sum payments, often making debt settlement very hard.

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Virginia Bankruptcy

A Virginia bankruptcy is an excellent solution for you if none of these other options will work for you. In a bankruptcy, a court will order the elimination of your debts. It's unlikely you will lose anything in a bankruptcy. You have the option of doing a quick Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is like a DMP but through a bankruptcy trustee instead of a credit counseling firm. The difference in a Chapter 13 bankruptcy and a DMP is that for all practical purposes, the Bankruptcy Code and the Chapter 13 trustee "dictate" the terms to your creditors for unsecured debts instead of negotiating with the creditors. A Chapter 13 bankruptcy will also cover short-term secured debts that a Virginia DMP would not. In Chapter 7 bankruptcy cases that don't require an attorney, we can help you file your own bankruptcy. If you do need an attorney, we can help you find a qualified attorney in your area. We are here to help you find the best solution for you.

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