Debt Management Programs to Reduce Personal Debt
It’s very easy during challenging economic times to rely on our credit cards to get us through emergencies and big bills. These costs could be anything from auto work, a new appliance, even an unforeseen medical bill. Even though credit cards are great tools for buying time when paying bills, the balances on these cards can quickly become unmanageable. One very effective way to take control of your debt is to enroll in a debt management program.
Most of us are aware that credit card companies charge exorbitant interest rates for their customers. Some companies even charge up to 24% APR. Owning and using these credit cards can definitely speed up the process of getting the customer into unmanageable debt. Eventually, the owner of the card will end up only being able to pay the minimum monthly payment while month after month, the principle increases dramatically, and payments at that point do nothing to reduce the principle on the debt. This is how credit card companies make their profits.
A debt management program or plan is a uniquely tailored strategy that allows the debtor to repay 100% of the unmanageable credit card debt over time at an interest rate that makes the process manageable and achievable. The participant of such a program gets a personalized strategy, taking into account the person’s income and debt. This is unlike bankruptcy or debt settlement, and there is no negotiation with the creditors to reduce the amount. What is negotiated is the interest rate and the monthly payment.
Many credit counseling institutions offer this service. A debt management plan can be implemented in situations where a debtor has multiple credit cards with different companies. After a strategy has been decided by the credit counselor to be implemented with the debtor, the debtor then commits to making regular monthly payments toward the debt until the balance of the debt is repaid. If the debtor has multiple credit cards, the credit counseling institution will negotiate one universal annual percentage rate to cover all credit cards. This rate is much lower than what the credit cards demanded before, usually between 9 to 10 APR. The payments are calculated so that the interest is paid as well as part of the principle and the credit counseling institution acts as an intermediary, distributing the payments to the different creditors. The plan can be implemented so that the debtor pays the entire debt within a few years provided the debtor does not miss payments.
There are many credit counseling institutions that provide debt management plans. Most don’t even charge fees for counseling visits, and offer great solutions with this strategy. Two very helpful resources are Clearpointcreditcounselingsolutions.Org and Debthelper.Com. Debt Helper has a great FAQ section about debt management programs and their effects on a person’s credit score as well as eligibility information.
