Do I Need A Debt Management Plan?Thursday, January 12, 2012
Lower interest rates, structured repayment plan benefits help consumers with serious debt problems
ATLANTA, GA. -- Consumer spending on the 2011 holiday season was higher than originally predicted, and for some consumers, that means they will be struggling with holiday and other debt well into the New Year and beyond. A Debt Management Plan (DMP) can provide the step-by-step plan to help get them back on sound financial ground. And with many creditors offering favorable repayment terms to consumers who enroll in a DMP, now might be the best time to tackle your debt.
"A Debt Management Plan is particularly helpful for consumers who are struggling to make even the minimum payment on their credit cards," said Rick Phillips, vice president of Debt Management Services for Consumer Credit Counseling Service (CCCS) of Greater Atlanta. "Ultimately, the plan serves the dual purpose of helping consumers repay their debts and helping creditors receive the money owed to them."
Consumers who enroll in a Debt Management Plan (DMP) may receive interest rates ranging from 6% to 10% from many creditors, compared to a range of 10% to 14% last year. Many people who opt for a DMP to repay their unsecured debt are prompted to seek help after late payments have caused their credit card interest rates to soar to 28% or more. The lowered rates are only available to clients beginning a new DMP.
At Consumer Credit Counseling Service (CCCS) of Greater Atlanta, certified counselors help consumers determine whether they can tackle their financial challenges through budgeting and reduced spending, or if the structure of a debt management plan will be more effective.
What is a Debt Management Plan?
A Debt Management Plan, or DMP, is a repayment plan that provides a systematic method for paying down your outstanding debt. Consumers make a single payment to an agency like CCCS, which acts as a trustee in distributing the funds to creditors. CCCS works with both clients and creditors to design a debt repayment program that minimizes monthly payments, interest and related fees, providing a manageable tailored plan for the client. This enables the client to repay their entire debt obligation at more favorable terms, and on a plan that is within their ability to pay.
The repayment period varies based on amount owed and the repayment terms. The average debt management plan is structured to repay debt in 36-60 months. The success rate is high. At CCCS, about two-thirds of DMP clients -- approximately 65% -- either paid off their creditors or felt they had sufficient control of their debts to assume control themselves.
Debt Management vs. Debt Settlement
Debt Management Plans, which are offered by many nonprofit credit counseling services, are significantly different from debt settlement plans, which are offered by for-profit companies.
DMPs enable consumers to get back on track by making smaller payments over a period of time to pay down their debt. Debt settlement companies typically delay contacting the creditor until collecting enough money from the debtor to have sufficient cash to begin negotiations on the account.
Do I Need a Debt Management Plan?
Debt can quickly become overwhelming if you ignore the warning signs. Look for these warning signs and take action to avoid compounding the problem.
- Using credit cards to cover daily living expenses
- Making only minimum payments on credit cards; or struggling to make even minimum payments
- Carrying multiple credit cards and rotating their use to juggle balances and due dates
- Making payments late or missing payments for more than one month
- Charging more each month on your credit cards than you are paying toward the balance
- Credit cards that are at or close to their limit
- Not knowing how much you owe
- Calls from creditors
- Taking out loans or using equity in your home to pay off debt
- An interruption in income would cause immediate difficulty paying bills
"Ignoring the problem won't make it go away," said Phillips. "Getting help at the first sign of trouble can make the difference between a financial setback and a financial disaster."
Get help.
The key to reclaiming your financial independence is recognizing the need for help and getting it. At Consumer Credit Counseling Service of Greater Atlanta, certified counselors will help you evaluate your financial situation and find the solution that best suits you. For more information on Debt Management Plans or to talk with a certified counselor about your options for a debt free life, contact CCCS at 800.251.2227 or online at www.CredAbility.org or www.CredAbility.org/es.
