Struggling with Credit Card Debt? Six Reasons to Choose a Debt Management Plan
Have you accumulated credit card debt that is getting out of control? Do you feel like you’re not making any progress paying down your credit card balance? This situation can be overwhelming and stressful, but a debt management plan (DMP) is a powerful tool for regaining control of your finances. Here’s how a DMP can help you get back on track.
What Are the Benefits of a DMP?
1. Debts are paid in full
First and foremost, you will pay back every dollar that you borrowed. A debt settlement company will try to settle your debt for less than you owe. This might sound attractive, but it reflects negatively on your credit. Your credit report could say something like, “Settled for an amount less than agreed upon.”
2. Avoid added charges and negative marks on your credit
While a debt settlement company negotiates your settlement, you make a monthly payment to them and stop paying your creditors. This process can take nine months or more, so late fees, interest charges and late marks on your credit report continue to add up. You are expected to make a payment to the debt settlement company for their service and ensure they have the funds to cover a settlement. Unfortunately, there is no guarantee that the creditor will accept the settlement.
However, if you have a debt management plan, you continue to make on-time payments, your creditors will continue to report those payments as on time and you will not have any late fees. However, you must be current at the time you set up the plan and continue to make payments by the due date each month.
3. Interest rates are lower
Depending on their individual guidelines, your creditors will usually agree to lower your monthly interest rate once you enter a DMP. Most credit card companies normally charge interest rates in the 20% range (up to 29.99% for department stores). However, under a DMP, your interest rate can drop in most cases to 12.5% or lower – even down to 0%.
Let’s say your balance is $15,000. Without a DMP, your monthly payments could be up to $374.88 in interest alone – pretty unrealistic for the average household.With a DMP interest rate of 5%, your interest charge would be $62.50 -- a savings of $312.38!
4. There is one monthly payment
Even if you have more than one creditor in your DMP, you only make one payment to the credit counseling agency. This simplifies your expenses and makes budgeting easier.
5. Debt is paid off faster
When you consistently make on-time payments on a DMP, your debt will be paid off faster versus paying the minimum payment and/or higher interest charges on your own. Our financial counselors have found that individuals on a DMP can be debt free in five years or less and save tens of thousands of dollars on their payments.
6. You remain in control
Having a DMP with LSS Financial Counseling means that you still have access to your accounts with creditors, even if the accounts are closed. You can contact the creditors’ customer service, login online to see that your payment is being made and find out your current balance.
If creating a DMP makes sense for you, contact LSS Financial Counseling. There are no income guidelines. Create your online profile to start your free, confidential financial counseling session online, or call us at 888.577.2227 to schedule an appointment over the phone or in person.
Author Cesar Romero is a Certified Financial Counselor with LSS Financial Counseling.