How Do Debt Repayment Programs Work?

If you have an excessive amount of credit-card debt you may need the services of a debt repayment program. A number of services are available from both profit and nonprofit organizations. Some repayment programs both provide counseling services and settle your debts. Get as much information as possible, and try to avoid those companies that charge a fee.

Interview

To pay down debt you may want to contact the National Foundation for Credit Counseling, which is a nonprofit organization. Call the toll free number, 1-800-388-2227, and you will be able to speak with a certified credit counselor in your area. A credit counselor will develop a plan of action specifically for you. She will first gather your personal information such as name, address, social security number and date of birth. The representative will then want to confirm and verify all income sources. Next she will need all of your credit-card statements and a list of your other monthly obligations such as car insurance, homeowner's insurance, utility payments, life insurance and cable expenses. The consumer credit counselor will also need a listing of all of your assets, such as money in the bank, stocks, bonds and investments. You can communicate with a counselor in person, by phone, through the mail or online.

Evaluation/Recommendation

The professionally trained counselor will then review your budget or help you construct one if you do not have a budget in place already. Since he has a listing of all of your expenditures, he is now able to make some recommendations designed to help you save money, pay debt, and set up an emergency fund. Chances are he will have suggestions on where you need to cut back your spending. The idea is to make your budget more affordable and manageable. Sometimes your income is not enough to meet your current obligations. In that case other options will have to be considered.

Debt Management Program

The credit counselor will help you create an action plan designed to get you out of debt and keep you from acquiring more debt. She will probably enroll you in a debt management program. The credit counselor will contact all of your creditors by mail to let them know you are in the program. The counselor will then negotiate with your creditors for a lower monthly payment as well as a lower interest rate. You may be able to have other fees waived, such as late charges and over-the-limit fees. Waiving fees helps you pay your debt off faster.

Program Implementation

When all creditors have agreed to the program the credit counselor will set up a repayment program which usually last for 36 to 60 months. You send a lump sum payment to the credit counseling service, and it distributes the monthly payments to each of your creditors. This can have a negative impact on your credit report, but eventually you will see your credit score increase. All creditors that agree to the program pay a fee, which is one of the ways the program is funded.