Getting Out of Debt: Self-Help and Debt Management Plans

Once you realize you're in financial difficulties and you need to get out of debt, you should come up with a budget so you can better understand where your money is going. If more is coming in than going out, what are you spending your money on, instead of paying down debt? If more is going out than coming in, where can you cut back and how can you bring in more?

These are all questions that have to be addressed, and there are different ways you can handle them. Two of the most popular ways are through self-help and debt management plans.

Getting out of Debt Through a Debt Management Plan

A debt management plan, which is what the credit counseling services offer, can be very helpful for people who are struggling financially. Going by the creditor's guidelines, your counselor consolidates your unsecured debt into one payment you send to the agency each month. The agency sends your payment to the creditors and sends you a statement each month showing what they paid the creditors. You are responsible for reviewing your monthly statements to make sure everything is right and that the lower interest or payments amounts are reflected.

The debt management plan will show up on your credit report. Your accounts will be noted "handled by debt management plan." Under the Fair Credit Reporting Act, information about your accounts including late payments can stay on your credit report for up to seven years. But the debt management plan will establish a history of regular payments, which will help you get credit in the future. Once you have paid the creditors, the credit report will show the accounts as paid in full.

There are usually some fees associated with debt management plans; it depends on what state you live in. These fees are usually minimal, and certainly worth it if they get you out of debt.

Getting Out of Debt Through Self-Help

A second option you have is handling your debt on your own. This includes calling the creditors directly and explaining your hardship. Ask your creditors to place you on a temporary hardship plan to lower your interest or payment amounts. Whether this approach works will depend on who your creditors are. Some creditors will do this while others will not. These hardship programs are short term - six months or so - rather than until the accounts are paid in full as on credit counseling re-payment plans.

If you have a large deficit that you cannot seem to lower and you have no assets, (for example, if you are a person on a fixed income due to disability or retirement, or a single parent who is currently unemployed) you can write to your creditors. Tell them you are living on a small, fixed income, you simply have no money to pay the bills at this time, and ask the creditors to please be patient with you. See if they will agree to work with you.

The creditors may not be considerate of the situation, but at least you have made the extra step. Keep copies of these letters for your records. It shows a good faith effort to let your creditors know why you haven't paid them, if nothing else.

United States Government. "Fair Credit Reporting Act." Federal Trade Commission