What does a repayment plan involve?

Under a debt repayment plan, you deposit money each month with the credit counseling service. Deposits are used to pay creditors according to a payment schedule developed by the counselor. A successful repayment plan could take 48 months or longer to complete. Ask the credit counseling service for an estimate of the time it will take to complete your plan. As part of the repayment plan, you may have to agree not to apply for or use any additional credit while participating in the program.

Does a repayment plan cover all debts?

No. While a debt repayment plan can eliminate much of the stress that comes from dealing with creditors and overdue bills, it does not mean you can forget about your debts.

• You are still responsible for paying any creditors whose debts are not included in the plan.
• You are responsible for reviewing monthly statements from your creditors to make sure your payments have been received.
• If your repayment plan depends on your creditors agreeing to lower or eliminate interest and finance charges or waive late fees, you are responsible for making sure these concessions are reflected on your statements.

What about auto and home loans?

Debt repayment plans usually cover unsecured debt. Your auto and home loan, which are considered secured debt, may not be included. You must continue to make payments to these creditors directly.

Car loans

Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required.

If your car is repossessed, you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. If you can't do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt. You would avoid the added costs of repossession and a negative entry on your credit report.

Mortgages

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary.

• Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past-due total.
• Other lenders may agree to change terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
• If you cannot work out a plan with your mortgage lender, contact a housing counseling agency. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city or county for help in finding a housing counseling agency near you.

What about "credit repair clinics" or "credit doctors"?

Only time and a conscientious effort to repay your debts will improve your credit report. Beware of for-profit or non-credentialed counseling organizations that make promises that they cannot or do not intend to keep. Companies coast to coast appeal to consumers with poor credit histories, promising to clean up credit reports for a fee.

By law, credit repair organizations must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you sign a contract. They must provide you a written contract that spells out your rights and obligations and gives you three days to cancel without paying any fees.

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