Credit Counseling is a free service that includes analyzing an individual or family’s, liabilities, assets, monthly expenses and monthly income, in order to provide guidance and ultimately recommend an action plan to pay off their unsecured debt.
One of the debt-payoff strategies we recommend is a debt management program (DMP), which typically allows the participant to enjoy reduced interest rates, one low monthly payment, and becoming debt free in fewer than five years.
Read more: Benefits of a Financial Analysis with a Credit Counselor
No charge. Credit counseling is a free service provided by non-profit organizations like DebtWave Credit Counseling.
When you speak with one of our certified credit counselors, it’s helpful to have a rough estimate of your monthly income and expenses. We will pull your credit report in order to view all of your liabilities so no need to worry about having statements or other financial documents.
Depending on your ability to pay off your credit card debt, your certified credit counselor may recommend you enroll in a debt management program (DMP). The primary purpose of a DMP is to get you out of debt.
If you decide to enroll in our DMP, your creditors will likely lower your interest rates allowing much more of your payments to go toward the principal payment instead of interest. To do this, DebtWave Credit Counseling, Inc. will collect one monthly payment from you to disburse to your creditors in order to pay off your credit card debt.
Most individuals will be on a DMP between three to five years. During that time, you will not be able to use your credit cards. These accounts will be closed.
If you are carrying a balance on your credit card month-to-month, this means your monthly expenses have exceeded your monthly income. In order to become debt-free, your expenses need to remain below your income. Your credit counselor will provide guidance to help you live within your means, and we’ll also offer tips every week on our blog.
DebtWave Credit Counseling, Inc. charges a nominal one-time enrollment charge no greater than $75, and a monthly fee no greater than $49. These fees are determined in part by your state of residence and will be calculated by your certified credit counselor during your credit counseling session. For more information, please contact DebtWave Credit Counseling, Inc., at 888-686-4040 or schedule an appointment with us here.
A credit score is something that determines whether or not you have the ability to borrow money aka get into more debt. If you are staring at a mountain of debt and are more concerned about your credit score, you may not be the best candidate for a debt management program (DMP).
Enrolling in a DMP can temporarily result in a lowered credit score, as closing your credit card accounts can increase your debt-to-credit ratio. However, we found that exposure to financial literacy programs can lead to higher credit scores. A sample of approximately 116 clients on DebtWave’s DMP found the average client saw their FICO score increase 25 points per year once they participated in both our financial literacy and DMP programs.
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Some creditors may report that an account is being paid via a debt management program (DMP). However, according to MyFICO.com that notation should not have any impact on your score.
No. This is not a loan. Your balances with each creditor put on the debt management program (DMP) will gradually decrease with each payment you make until they are paid in full
No. You will ultimately pay back 100 percent of the principal you owe to your creditors, but you’ll likely save in interest charges you would have otherwise been accountable to pay.
The purpose of the debt management program (DMP) is to help you get out of debt, which is why we typically recommend all outstanding debts be placed on the DMP. Leaving an account off the plan may tempt you to continue charging on that account and ultimately see your balance go up instead of down.
The only accounts we recommend to leave off the DMP are those that are not eligible due to either being new accounts or those opened under a promotional plan.
Most minor emergencies such as car repairs should be included in your monthly budget. Major financial emergencies such as a job loss or large medical expense can be difficult to overcome. We encourage you to set aside the money that you are saving on the debt management program (DMP) and build an emergency fund. If that is still not enough to build a rainy day fund, consider taking on a side-hustle to help build your financial reserves.
We highly encourage you to refrain from acquiring any new debt while on the DMP. Most of our clients’ goals are to become debt-free. Opening new accounts will likely shatter the dream of achieving this goal.
While debt management and debt settlement programs seem similar on the surface, they are actually very different ways of eradicating debt.
While enrolled in a DMP, you’ll still be required to meet your monthly payments, but will do so at a reduced interest rate. You eventually pay back 100 percent of your total debt plus interest.
A debt settlement company, on the other hand, will negotiate with your creditors to settle for 40 to 60 percent of your outstanding debt. In order for your creditors to agree to a lower balance, you must fall severely delinquent. When paying the debt settlement company each month, instead of paying your creditors right away, they are helping you build reserves to ultimately make an offer to your creditors after months or sometimes years of starving them of payment. Most people current with their debt payments are not comfortable intentionally falling this far behind with their payments.
The fees paid to debt settlement companies are typically much higher than debt management. For example, if you owed $100,000 to your creditors, a debt settlement company may negotiate your outstanding debt to $40,000. However, you’ll also have to pay fees of 15 percent or more of the total debt you owe. So at a minimum, you’d end up paying $55,000 ($40,000 + $15,000) to settle your debt.
The impact of your credit score with a debt settlement program will be much greater as your payment history will be severely damaged. You’ll also have some tax implications to consider. The debt that was forgiven must be claimed on your taxes as income. So in the case of our example, you’d have to add $60,000 to your earning for the year because that was the amount of debt that was forgiven by your creditors.
If you choose to use a debt settlement company to handle your debt, it’s also important to note that you may be susceptible to lawsuits and your wages may be garnished.
Read More: Debt Settlement vs. Debt Management: Which is Right for You?
Student loans are not eligible for our debt management program. However, we can provide you with some tools to assist you with paying your student loans back.
Creditors are willing to give our clients benefits they don’t typically offer to individuals mostly because they know our clients will receive a financial education and budgeting guidance to help them become debt-free.
Sometimes creditors will offer a reduction in interest or payment directly to an individual, but unlike a DMP, it will typically be offered for a limited amount of time.
No. Most creditors typically require that clients must be current with their payments in order to be eligible for a DMP. Creditors typically apply benefits only for those accounts that are current or no more than two to three months behind.
If an account is severely delinquent, it will not be eligible for the DMP.
We recognize that in a digital world it is sometimes more convenient to access information online. Our certified credit counselors and customer service representatives can predominantly communicate with you via email. However, for the initial credit counseling session, it’s crucial that we discuss your financial situation over the phone.
We specialize in helping clients acquire benefits to pay off their credit cards, department store-branded credit cards, and some unsecured personal loans. Collections and medical bills can be included in our program. However, we will simply forward monthly payments on your behalf for those debts.
If you have a payday loan, car loan, home loan, and/or student loan, we can refer you to an organization that can assist you with these types of loans, as these debts cannot be added to the DMP at this time.
There are significant differences between a debt management program and filing for bankruptcy.
Unlike a bankruptcy, your debts are not forgiven if you enroll in a DMP. A DMP will also have little to no impact, at least long-term, on your credit score. A bankruptcy, on the other hand, will dramatically lower your score, leaving you with a new credit score ranging somewhere between 520 and 550. A bankruptcy will also stay on your credit report for seven to 10 years.
On a DMP, you’ll be paying back your debt over a period of time that usually lasts between three and five years. A Chapter 7 bankruptcy, which forgives debt without a payment plan, usually lasts four to six months, while a Chapter 13 bankruptcy, which is a payment plan, will also last three to five years.
A DMP will only cost you the outstanding debts you have, likely at a lower interest rate, along with a nominal service fee. Filing for bankruptcy can be costly. You may eliminate outstanding debts, but you’ll incur court and attorney fees.
Yes! There is no penalty or fees if you pay off your debt earlier than anticipated. Just make sure all payments are made out to ‘DebtWave Credit Counseling, Inc.’ in order to successfully complete the debt management program. Additionally, if you choose to pay off your debt early, we recommend having at least three to six months worth of your monthly income saved up first, should you experience any emergency expense.
Yes! We recommend paying off your debt as soon as possible and therefore encourage our clients to pay as much as they can while they are on the DMP. Paying more than the monthly payment will save you time and money. If you are interested in increasing your DMP payments just once or moving forward, please contact your customer service representative.
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Yes. In order to be eligible for the debt management program (DMP), as well as achieve your goal of becoming debt-free, your creditors will close your accounts and you will not be able to use those credit cards while you remain on the DMP.
If you are currently enrolled in DebtWave’s debt management program (DMP) and are no longer able to afford your monthly payments, the first step is to contact your customer service team member. Our team of professionals will work to assist you as much as possible during this hardship and will work with your creditors to try and further reduce your monthly payments. In some instances, your customer service representative may try to connect with you a financial expert that may offer a different solution.
Absolutely! In fact, we encourage you to add as much debt as possible so that when you graduate from our debt management program (DMP), you will truly be debt-free. The more debt we assist you with, the more you’ll save, and the earlier you’ll be able to enjoy your debt-free life!