What to Expect From Debt Management

Debt management programs have grown in popularity as more and more Americans find themselves in insurmountable levels of debt. While these programs would like you to believe being on the program means your debt problems will magically disappear, the reality is quite different. Some adjustment is virtually required in order to satisfy the terms of your program.

Debt Management Basics

A debt management program is a tool used by credit counselors to create a personalized budget that can get you out of debt within five years. Debt management programs involve lowering your interest rates to manageable levels that will help you to pay down your balances. By the time your program is over, you'll have a nice history of on-time payments and will be able to re-enter the world of using credit.

Joining the Program

Joining a debt management program is almost always preceded by a meeting with a credit counselor, who will work with you to find the best solution to your financial dilemma. If the debt management program is the way to go, the counselor will send proposals to your creditors detailing your desired interest rate and monthly payment. During this phase, which lasts about a month, you are responsible for paying the credit counselor as well as your various creditors. Once your proposals are accepted, you only have to pay the counseling agency, which will then pay your credit card bills each month on your behalf.

Surviving the Program

The initial phase of the program is the hardest for many people, as it essentially requires you to make double payments. However, the main part of the program is difficult as well. Since you can no longer use your credit cards, nor can you apply for any additional credit, you must learn how to live without credit. This can be a huge adjustment that may lead to massive changes in your budget and personal life. These changes may include bringing lunch to work, skipping your morning coffee or getting a part-time job.

After the Program

According to DebtShield, a debt settlement company, three of every four people who sign up for debt management programs drop out before their programs are complete. If you're one of the four who survive, you'll have rebuilt your credit and should have at least an average credit score. Though many credit card companies will cancel your cards once you join the program, some will reinstate your credit after completion; other banks will offer you credit as well. Furthermore, you'll know a lot more about how to manage your credit, significantly diminishing the chances of you falling into a debt hole again.