For Consumers Strapped By Debt, Debt Management Plans Offer New Hope and an Alternative to Debt Consolidation Loans says American Financial Solutions

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Many people seek debt consolidation loans in order to have one, smaller payment each month and to make debts more manageable. What they don't know, says credit expert Becky House of American Financial Solutions, is that credit counseling agencies now offer a debt management plan which provides similar benefits.

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American Financial Solutions

The consumer's budget is the most important factor in qualifying for a debt management plan.

By the time many people contact a non-profit credit counseling agency, they have tried multiple methods of managing their debt situation on their own. These range from applying for debt consolidation loans to asking creditors to reduce payments and interest rates on accounts. The lack of options and assistance leaves people feeling frustrated and overwhelmed.

Fortunately, there is new help available through a familiar source. The call to a credit counseling agency can provide consumers relief. But in addition to the typical help in developing a workable budget, preparing for homeownership and exploring options for getting out of debt, these agencies also offer debt management plans.

A debt management plan (DMP) has many features that are desirable to someone who needs an affordable way to repay unsecured debts like credit cards, medical bills and collection accounts. On a DMP creditors may provide the following benefits:

[1] Reducing minimum monthly payments on accounts or allowing monthly payments rather than demanding payment in full

[2] Reducing the interest rates on credit accounts

[3] Stopping late fees

[4] Re-aging of accounts. This means that creditors may show a consumers accounts as being current, even though the consumer did not make up past monies owed

People often ask why creditors are willing to provide this help and benefits through a debt management plan, but decline to make adjustments to accounts when a consumer asks them directly. The answer is found in the relationship between the credit counseling agency (CCA), the consumer and the creditors. In a sense the CCA is acting as a reference for the consumer.

Before someone can add their unsecured debts to a DMP, they must go through credit counseling. This process includes reviewing household income and expenses, assets, and exploring available options for repaying debt. Then a credit counselor helps the consumer develop a budget that meets their needs and includes a monthly payment to each of their creditors.

When someone enrolls on a DMP, the CCA sends the creditor a proposal. The proposal includes a verification that the consumer is working with the CCA, the amount of the proposed monthly payment on the plan and information showing that the payment fits within the person’s budget. One of the most important steps in this initial process is ensuring the balances provided to the CCA are accurate. Using an inaccurate balance may result in a creditor declining to participate in a DMP because the proposed payment is too low.

In exchange for accepting a proposal, creditors and CCA’s require that consumers take important steps while on the DMP.

[1] Monthly payments must be made on time.

[2] Creditor statements have to be reviewed regularly, because the CCA does not receive them.

[3] Acquiring additional debt should be avoided.

If a debt management plan sounds like a good option for consolidating payments on unsecured debts and reducing the time spent stressing over finances, be sure to work with a reputable credit counseling agency. There are three recommendations on what to look for:

[1] Accreditation through the National Foundation for Credit Counseling or the Association for Independent Consumer Credit Counseling Agencies

[2] They are a non-profit agency

[3] They have a positive record with the Better Business Bureau

The only way for a consumer to know if a debt management plan is right for them is to speak with a credit counseling agency. The CCA will help the individual consider all of the options available for managing their debt and their finances and help them select the choice that best meets their needs. The role of the CCA is to offer consumers some advice, some hope and a plan for getting out of debt.

American Financial Solutions (AFS) is a non-profit 501(c)3 financial education and credit counseling agency that helps people find solutions for managing their money and improving their financial lives. Since 1999, AFS has helped individuals across the United States through one-on-one counseling, classes and the use of debt management plans. AFS is a member of the National Foundation for Credit Counseling (NFCC) as well as the Association for Independent Consumer Credit Counseling Agencies (AICCCA). AFS is also accredited by the Council on Accreditation (COA) and has an A+ rating by the Better Business Bureau. Find us and add us on Facebook, Twitter and Google+.

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Becky House