The economy is continuing to improve, and many people who saved diligently during the recession to pay off debt are now feeling comfortable enough to borrow again for homes, cars, and other big purchases.

As a result, U.S. household debt is climbing at its fastest pace in five years. Consumer household debt rose 1.1 percent in the third quarter of 2013 to $11.3 trillion, according to the Federal Reserve Bank of New York.

While the increase in borrowing means consumers are feeling better about the economy, it also means that a certain percentage of people will overextend themselves, while others will experience an untimely job loss or medical debt that will put a major crimp in their finances.

Responsible ways to get back on track from financial trouble

When trouble hits, debt can pile up quickly. Fortunately, nonprofit credit counseling agencies offer repayment plans that can help people get back on track—even those with tens of thousands of dollars in credit card debt.

If you find yourself in debt, a certified credit counselor can help you determine whether you can tackle your financial challenges through budgeting and reduced spending or through a debt management plan, also known as a debt management program or DMP.

A debt management plan is a monthly repayment plan to help consumers pay down their outstanding debt. For a small monthly fee, consumers make a single payment to the nonprofit, which acts similar to a trustee in distributing the funds to creditors.

For example, nonprofit credit counseling agencies with both individuals and their creditors to design a debt management plan that lowers monthly payments, interest rates, and related fees. This enables consumers to repay their entire debt at more favorable terms and on a plan that is within their ability to pay.

Like many long-term plans, a debt management plan takes time to be effective. The repayment period varies based on the amount owed and the repayment terms, but for most people the average plan is structured to repay debt in 36 to 60 months.

Some people opt for this type of plan soon after the holidays, while others choose it when late payments have caused their credit card interest rates to soar. Consumers who enroll in a debt management plan often see interest rates on their credit cards drop. Lower interest rates can result in lower payments, which may help cardholders repay their balances.

How do I know if a debt management plan is right for me?

Not everyone will qualify for a debt management plan. After all, creditors are interested in receiving their full payment, so they must be convinced that an individual can no longer make regular payments.

How do you know if you may be a candidate for such a plan? Look for these warning signs:

  • You are using credit cards to cover daily living expenses.
  • You are making only minimum payments on credit cards or struggling to make the minimum payments.
  • You are carrying multiple credit cards and rotating their use to juggle balances and due dates.
  • You are making late payments or missing payments for more than one month.
  • You are charging more each month on your credit cards than you are paying toward the balance.
  • You have credit cards that are close to or at their limits.
  • You don’t know how much you owe.
  • You are dealing with calls from creditors.

Ignoring the problem won’t make it go away, so get help at the first sign of trouble. That can make the difference between a short-term financial setback and a financial disaster.

Mechel Glass is the Vice President of Education for ClearPoint Credit Counseling Solutions. She is responsible for developing the curriculum and financial education materials for online classes including webinars, podcasts, videos, and listen-on-demand classes. She provides support and training for the agency’s community outreach programs and staff, including financial education specialists in 15 states. Glass also manages the development and reporting of the agency’s online education, and she is the co-author of The Veteran’s Money Book (Career Press, April 2014). 

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