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Credit Card Debt Management Plan: 11 Brutal Facts You Must Know

“Out of debt, out of anger”

Are you looking for a way to pay off debt and pacify creditors? Are you scared of lawsuits and judgments? Do you want to pay off your debts before creditors decide to file a lawsuit against you?

If so, then credit counseling agencies can help you. Their credit card debt management plans can help you pay back your creditors through an affordable repayment plan.

But before you decide to join a credit card debt management plan, there are a few facts you must be aware of.

Some of them are listed below.

#1. You’ll get an affordable payment plan

Credit counselors will create an affordable repayment plan for you. They’ll analyze your income and expenses. They will also negotiate with creditors to cut down the existing interest rates on your credit cards.

Once they get an idea about:

  • how much you can afford to pay each month
  • how much interest rate creditors are willing to reduce, credit counselors will make the first draft of your repayment plan.

They will show you the repayment plan first. If you agree, they’ll propose the repayment to your creditors. If your creditors accept the plan, then the credit card debt management agreement will be finalized.

You have to pay a fixed amount each month till your creditors are satisfied. Once a credit card account is paid off, a bigger portion is disbursed amongst the other credit cards. This helps to accelerate the debt repayment process.

#2. Credit counselors will handle your calls

Once you enroll in a debt management plan (DMP), credit counselors will handle your debt collection calls. They will solve the queries of creditors. You can sleep peacefully.

#3. Credit counselors will manage your payments

Credit counselors will manage your multiple credit card accounts. All you need to do is make one low monthly payment to the credit counseling agency. They will disburse the amount to your creditors until they are satisfied.

Credit counseling agencies don’t issue any loan. or settle your credit card debts. Rather, they negotiate with your creditors to slash interest rates in exchange for a fee.

#4. You’ll get a budget plan

This is one of the benefits of credit card debt management plans. The credit counselors will analyze your financial situation. They will evaluate your monthly income, expenses and savings.

Thereafter, they will give you a budget plan so that you can save more money and make the monthly payments till your debts are paid off.

#5. Late fees and penalties are dropped

So what if you have missed out payments on your credit cards? All the late fees, fines and penalties will be waived off once you enroll in a credit card debt management program. You’ll save that money.

#6. All agencies are not equally good

It is important to be extremely careful at the time of choosing a credit counseling agency. All the agencies are not equally good, and you’re not in a position to take any risk.

Try to choose an agency that is accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). This is because the quality parameters of NFCC and FCAA are quite strict. They ensure that their members pass strict standards set forth by the Council.

Check the website of the credit counseling agency minutely. Check their accreditation and customer reviews properly. Do they send payments and statements on time? Are the existing customers happy? If the review is not satisfactory, then look for another credit counseling agency.

#7. DMP is not right for everyone

A debt management plan won’t help if you have secured debts like mortgage. It also won’t help to pay off child support, alimony, old parking tickets, etc.

A debt management plan essentially helps to pay off credit cards, store cards, utility bills, medical bills, payday loans, collection accounts, charged-off accounts, unsecured personal loans, etc. You need to remember that.

Debt management plan is not suitable for you when your goal is to reduce the outstanding balance. In that case, you have to enroll in a credit card debt settlement program.

You need to have enough funds in your bank account to make the required monthly payments till your debts are paid off. If you stop making payments after a few months, the plan will be scrapped. DMP won’t help you in this scenario.

#8. You can’t sit idle

Credit counselors will do most of your work. Still, you’ll have some work to do. You have to check if creditors are getting timely payments. You need to check the account statements. After your accounts are paid off, you have to check your credit report.

If you find that your credit card accounts have not been updated as “paid in full”, then request the creditors to do so.

#9. You have to change your lifestyle

You can’t use the credit cards that have been enrolled in the debt management plan until your debts are paid off. This can be tough for you especially when you have a habit of whipping credit cards for every purchase.

Moreover, you need to lead a frugal lifestyle. It doesn’t make sense to incur fresh debts when you’re trying to pay off your existing credit cards.

You can use only one credit card with low balance for emergency purpose. Plus, you need to create an emergency fund that can help you survive for 6 months.

#10. DMP is better than DSP

I am not going to explain why debt management is better than bankruptcy. Most debt relief plans are better than bankruptcy since it restricts you from obtaining a home loan for almost 2 years. But do you know that a debt management plan is better than debt settlement program (DSP)?

In a debt settlement program, you’re paying less than what you owe. This is a red flag to the lenders. But in a debt management program, you’re paying debts in full. So obviously, this is better than settlement.

#11. You have to pay tax

If you are saving more than $600, then creditors will send you the famous 1040 form. This means you have to pay tax on your savings. The IRS will consider your savings as your income.

Conclusion

You should not enroll in any debt relief plan blindly since it involves money. Scams are rampant and millions of debtors get ruined every year. It always makes sense to know the debt management facts properly so that no one can take advantage of your innocence.

If you have doubts, ask your questions in a credible debt management forum. Don’t hesitate or feel shy. The industry experts will guide you in the right direction.

There is another benefit of participating in a debt management forum. You can read the popular forum threads and get lots of information. Millions of debtors share their real-life experience in forums.

This would help you a lot. Plus, you can know about the recent laws and popular tools to manage your debts. For instance, lots of websites offer free debt management calculators that give you an idea about how much you can save with a debt management plan. You can use them and decide if it would be a smart move to join DMP.

If you’ve got a money saving tip, some advice, or ideas you think our audience would be interested in, then we’d like to hear from you. Now you can write for DailyMoneySaving.

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Daily Money Saving is a community built around the notion that saving money is good. We offer free articles and information on all aspects of personal finance including debt reduction, how to save money, how to make money and how to invest.

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