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Moving could derail your debt management plan

 
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August 14, 2013

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If you're in the middle of a debt management plan and you're getting ready to move out of state, you should add one more item to your to-do list: Call your credit counselor.

A debt management plan (DMP) is an agreement you reach with your creditors via a credit counseling agency. You agree to make single monthly payments to your counseling agency, which passes them on to your creditors. In addition to simplicity, you'll often get lowered interest rates out of the deal.

Yet, because not all credit counseling agencies are licensed in every state, moving can present some complications if you are moving to a state that has licensing requirements for its credit counselors.

“You ought to look into your options as soon as you know you're moving,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA). He says credit counselors deal with moves frequently and will be able to offer advice and help. So, he says: “You won't be on your own.”

There are two possible scenarios when you move in the middle of a DMP: Either your credit counseling agency is licensed in your new state, or it's not. Here's how to prepare for either situation.

If your credit counseling agency is licensed in your new state
Some states require credit counseling agencies to be licensed before they serve their residents. Your credit counselor will be able to tell you if the credit counseling agency that handles your DMP is licensed in the state you are moving to. If the organization is licensed there, Jones says, “There won't be any problem — or, very little.”

Laws and rules vary by state, but in many cases you will be able to stay on the same DMP, with the same terms, interest rates and payment due date. For example, Apprisen, a debt management organization licensed in all 50 states, would likely preserve a client's current debt management plan, says Jana Castanon, community outreach coordinator for Apprisen.

“It would go on like nothing happened,” she says. “Nothing would change.”

If you're able to stick with your current DMP through the same credit counseling agency in your new home, make sure the move doesn't derail your payments, Castanon says.

Many consumers change banks when they move, she says. So, if you have your monthly payments debited from your checking account, make sure you contact your credit counseling agency as soon as possible to provide your new bank account details.

If your credit counseling agency does not operate in your new state
If your credit counseling agency isn't licensed in your new state, you have two main choices:

1) DIY DMP: You can call each of your creditors individually, explain the situation and ask if you can continue to pay them directly under the same terms and with the same payment due date as in your current DMP, Jones says.

“For some consumers it might be a good option,” Jones says, but adds that he usually doesn't recommend going the DIY route.

“Consumers got into trouble in the first place because they weren't making their payments,” he says, noting that with the DIY method, a consumer has to remember to pay each creditor every month on time.

2) Find a new agency: Your other option is to find a credit counseling agency in your new state, set up an appointment and start a new DMP.

“It's usually easier,” to go this route, Jones says, noting that consumers can continue to get budgeting help from a credit counselor and make just one payment a month. However, you might have to pay a fee if your credit counseling agency decides you can afford it. While some consumers don't pay anything, the average fee through AICCCA member agencies is $23 a month, Jones says.

Can't decide what to do about your DMP? Well, you can — and should — continue to pay your current credit counseling agency during the transition period, Jones says. Once you've made your new address permanent, though, you do need to decide quickly what to do, Jones says.

“At that point, [clients] ought to either start paying creditors themselves or make arrangements with a new agency instead of being in limbo,” he says

Planning multiple moves? Choose a credit counseling agency carefully
If you plan to move more than once over the next few years, it's important to pick a credit counseling agency that's licensed in all 50 states.

Not only will that save you the hassle of finding a new credit counseling agency when you move, but it could also prevent a bigger problem. There are limits on how many times you can start over with a new DMP, Jones says. A federal financial regulatory body, the Federal Financial Institutions Examination Council (FFIEC), allows an account to be “re-aged” — meaning you begin making payments on a different amortization schedule — once per year or twice every five years.

When a consumer starts over with a new debt management plan, that constitutes a re-aging of the accounts involved, Jones says. In a worst-case scenario, with multiple moves that required switching credit counseling agencies, a consumer could lose the ability to start a new DMP, Jones says.

“Then they'd be back to their original situation before the debt management plan, with over-limit fees and late fees and higher interest rates,” he says. “It's easier for a consumer to be with a national agency licensed in every state.”


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