When faced with overwhelming credit card debt, as many of us are in this recessionary era, we’re awash with options on how to deal with the debt: handle it on our own; try debt settlement; obtain a debt consolidation loan; file for bankruptcy; tap home equity, or join a debt management program through a credit counseling agency.
Each approach has advantages and disadvantages. Here we’ll clarify what’s entailed in a debt management program.
What is it?
A debt management plans are also commonly referred to as “debt management programs,” “DMPs,” and “debt repayment programs.”
First a person with unmanageable credit card debt seeks credit counseling at a consumer credit counseling service. A counselor obtains an itemized list of the client’s monthly expenses and income. If a client has funds remaining in the budget, but can’t keep up with minimum payments, debt management becomes a possibility.
A debt management plan is a personalized, structured repayment program wherein you pay back 100% of your debt over time, a maximum of 60 months. You pay down the principal much faster than you could on you own and make one monthly payment to the credit counseling agency which electronically distributes the money to your creditors.
A good credit counselor will review the status of your creditors—tracking the name of the credit grantor, the account number and current interest rate. Then the counselor will look up how much each creditor would charge in interest were you to join the program (policies between creditors vary greatly). A counselor can tell you how you could save in interest over the long term and your shortened payoff time.
What are the benefits?
- Lower interest rates, late and over-limit fees. By joining a debt management program, you show you wish to back your debt. In exchange, most creditors make concessions to the original agreement to help their customers repay their debt and avoid a potential bankruptcy. (more…)