Do I Need A Debt Management Plan?

New Federal Reserve data shows that consumer borrowing surged more than $20 billion in November, partly to cover spending over Black Friday weekend. This means that some consumers 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 struggling to make even the minimum payment on their credit cards,” said Brent Bishop, community development officer for CredAbility. “Ultimately, the plan serves the dual purpose of helping consumers repay their debts and helping creditors receive the money owed to them.”

Many people who opt for a DMP to repay their credit card debt are prompted to seek help after late payments have caused their credit card interest rates to soar. Consumers who enroll in a DMP may receive interest rates ranging from 6% to 10% from some creditors. Lower interest rates can result in lower payments and can help cardholders repay their balances.

In 2012, people who enrolled in a DMP with CredAbility had an average of $24,420 in credit card debt, carried 6.5 credit cards and had an average credit score of 602.

At CredAbility, 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 is a systematic method for paying down your outstanding debt. For a small monthly fee, consumers make a single payment each month to CredAbility, which acts as a trustee in distributing the funds to creditors. CredAbility works with both clients and creditors to design a debt repayment program that minimizes monthly payments, interest and related fees. This plan enables an individual 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.

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 Bishop. “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 CredAbility, 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 CredAbility at 1-800-251-2227 or online at www.CredAbility.org.  

About CredAbility

Founded in 1964, CredAbility is one of the leading nonprofit credit counseling and education agencies in the United States, serving clients in all 50 states plus the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands, in both English and Spanish. In addition, we provide in-person counseling at offices in five states in the southeast. Service is provided 24/7 by phone at 800.251.2227 and online at www.CredAbility.org.