Providing Debt Management Services to Parents in the Child Support System
Debt management services
Debt management services are intertwined with the work done during credit repair. They can range from simple acts like budgeting and creating repayment plans to enrolling in a debt management plan. The Federal Deposit Insurance Corporation (FDIC) Money Smart financial education curriculum explains credit reports and the steps needed to improve them, including paying down past debt. Participants learn about strategies to reallocate monthly income toward debt repayment, as well as the importance of maintaining a manageable debt-to-income ratio. For more details on the debt management information in the Money Smart financial education curriculum, see the To Your Credit training module.
How can custodial and noncustodial parents benefit from debt management services?
Basic debt management services may revolve around the same steps as credit repair: getting a sense of how much is owed to whom, and at what interest rates and terms. The next step is to set up a plan to begin paying off that debt. AFI grantees may have financial counselors in-house to assist with this step, or may refer parents to partners who can help them develop an individual plan.
For noncustodial parents, the most important source of debt to address may be child support debt. If noncustodial parents find themselves falling behind on child support payments, they should contact their child support officer to find out whether it is possible to renegotiate the terms of their debt. This may be possible through order modification (resetting the monthly child support amount to more accurately reflect their income and resources), developing a repayment plan, or through applying for debt forgiveness. More information about modifying a child support order can be found in the www.IDAResources.org website’s Child Support Order Modification fact sheet. For more information about managing child support debt, see the fact sheet on Managing Child Support Debt.
Even other sources of debt may require personal contact with creditors or the holders of the loan. The sooner a parent contacts a creditor, the better the chance he or she has to negotiate a modified payment plan with a lower interest rate and/or lower monthly payments.
For more intensive assistance, both custodial and noncustodial parents can take advantage of a debt management plan, offered through reputable credit counseling agencies. In this program, the client regularly deposits money with a credit counseling/debt management organization, which then makes payments to the various creditors. The creditors may agree to lower interest rates or waive fees in exchange for regular, timely payments through the program. A debt management plan should not be entered into without first obtaining the advice of a reputable credit counselor.
How can child support and AFI partner to provide debt management services?
AFI grantees and child support agencies can work together to identify parents in need of more intensive debt management assistance, including both child support debt and any other sources of debt. Child support agencies can train AFI grantees in the available options for addressing child support debt, so they can better counsel noncustodial fathers and refer them to the child support agency for more information.
In addition, AFI grantees can share with child support offices their contacts and partnerships with credit counseling agencies so that parents will be informed about these resources through both agencies.