A debt consolidation plan is the consolidation of all unsecured debts into one monthly payment to a third party agency, usually nonprofit. Debt consolidation can eliminate debt while improving your credit with timely monthly payments at reduced fixed interest rates. Learn the inner mechanics of a free counseling session and what debt consultation entails with a nonprofit. The payments are sent out monthly as they are received under modified terms negotiated by your nonprofit credit counseling organization. The modified terms include.
- Stopping of collection calls
- Stopping of late, past due, and over the limit fees
- One lower monthly payment that gets you out of debt in 5 years or less
- Reduction of interest rates to one single digit fixed rate
- Change of the due date in accordance with your other bills and pay schedule
- Bringing past due accounts current without paying anything additional
- Keeping accounts reporting positively to help improve your credit score
TIP: If you’re not behind and current a nonprofit debt consolidation plan can keep your accounts current so it does not hurt your credit rating.
TIP: If you’re behind and receiving multiple fees a nonprofit debt consolidation plan stops those immediately after enrollment and brings the accounts to a current status so they start building back your credit score.
TIP: Most consumers are paying 2-3 different interest rates between purchases, cash advances, and balance transfers. A consolidation plan creates ONE low fixed APR, usually in the single digits between 0-9 percent.
A debt consolidation plan will start with a counseling session provided free by a certified credit counselor. These financial counseling sessions usually begin with a budget analysis, covering your debt to income ratio on a monthly basis. This allows both parties to identify where the consumer currently is with their finances and explore available options from there.
TIP: Counselors usually find ways for consumers to save money monthly in their regular bills outside of the consolidation. Ask a certified counselor about insurance packages and utility bundles.
For the debt consolidation quote, a certified counselor will want an accounting of the unsecured debts looking to be consolidated. To provide an accurate savings and payment quote a counselor will need each creditor name, balance, and current interest rates for the accounts consolidating. This allows the counselor to establish an affordable monthly payment within the consumer’s budget that will work with each creditor’s guidelines for minimum monthly payments to be debt free in 5 years or less.
TIP: You do not have to consolidate all your credit card and unsecured debts. You can leave some out as needed.
TIP: There is no minimum debt amount with nonprofits. If they can help you save money they will, regardless of how much debt you have. $10k minimum debt requirements are mostly FOR profit agencies posing as nonprofits and should be reported to the FTC ASAP.
TIP: Nonprofit consolidation plans are designed to get you out of debt in 5 years. A debt consolidation organization should not charge you anything extra or prorate a service charge for paying off the debt earlier than the 5 years planned.
Once a monthly payment amount is established that is affordable for the consumer the counselor will then ask the consumer to select a payment date that works best for them around their pay schedule and monthly bills. This new due date is then negotiated by the org on your behalf to ensure payments are considered on time and continue to help improve credit.
TIP: 35% of your credit score is made up by payment history. This is the largest factor in what affects your numeric credit score.
At this point, you should have had a budget analysis and free debt consolidation quote from your certified counselor. If the savings are there and the payment is affordable it’s then time to finalize paperwork and get those debts consolidated!
Upon entering a debt consolidation program a certified credit counselor will ask you to make one final call to your creditors to cancel any promotional plans, insurance policies, automatic payments and lastly, the closing of the account. Once this has been achieved the debt consolidation org can begin managing your creditors and working with them direct.
Want more information on how a nonprofit debt consolidation plan could work for you? Call and speak to a certified credit counselor today.