The Effects of Debt Management Programs

The purpose of a debt management and credit counseling program is to help you pay down your outstanding credit card debt and put you in a position to better manage your finances. When you decide to participate in a debt management program, you can expect several things to happen.

Lower Interest Rates

Once you sign up for a debt management program, you choose which credit card accounts you would like to have enrolled in the program. Often, the credit-counseling agency will have existing relationships with various credit card issuers and be able to quickly facilitate the inclusion of the account into the program. Once a card issuer accepts an account into the program, the interest rate on the account is significantly lowered, and sometimes fees will cease to be assessed.

Closure of Enrolled Accounts

The card issuer may require that your credit account be closed as a concession to offering the significantly reduced interest rate. This means that you will be unable to use this credit card for any purchases. It is unlikely that the account will be reinstated upon program completion without applying for new credit. Card issuers that accept your account into the program may also stipulate that you cannot apply or open new credit accounts under penalty of having the account removed from the program and reverting to the higher interest rate.

Financial Education

Paying down your credit card debts is a significant step towards regaining control of your finances, but the only true solution is to learn to manage your credit and spending more responsibly. Debt management programs often require counseling sessions with a financial planner as well as ask you to read literature on how to start budgeting, reduce expenses and adjust your entire perspective of finances. Debt management plans aim not only to help you resolve your current debt issues but also to see that they do not recur.

Starting Point to Rebuild

Once your debt management plan has reached its conclusion, you will find yourself in a position to start rebuilding your credit. Since it is likely your credit profile was damaged upon enrollment, you may still be experiencing some lingering effects from delinquent payments predating enrollment in the program. Additionally, due to the account closures, your overall available credit is likely much lower than it was, and your credit history length may be shortened if you closed out some of your older accounts. Fortunately, with balances paid down and new skills on hand to better manage your finances, you should be in position to start rebuilding your credit one account at a time.