If you’re struggling to pay the minimum on your credit card bill every month, then it might be time to consider other options.
Credit card debt can be particularly stressful thanks to high interest rate and late fees, and it may feel like you’re not making any real progress on your credit card debt. But here’s the deal—a debt management plan might be the solution you’ve been searching for.
What is a credit card debt management plan?
Debt management plans (DMP) are offered through credit counseling agencies. The agency negotiates with creditors on your behalf and creditors hopefully agree to concessions, or changes to repayment terms, that make it easier for you to pay your balance.
Concessions often include lower interest rates, reduction or elimination of late fees, and bringing accounts current.
Plus, a DMP allows you to make one monthly payment to your credit counseling agency, who will then make the payments on your behalf.
Here’s everything you need to know about how to repay your credit cards with a debt management plan.
Meet with a counselor
The first step is to meet with a certified credit counselor. Even though debt management plans are excellent solutions for some people, it may or may not be the right solution for you.
A certified credit counselor takes time to review your unique financial situation and offer personalized recommendations.
If the counselor recommends a debt management plan and you agree to try it, then the process begins.
Creditor concessions often include lower interest rates, reduction or elimination of late fees, and “re-aging” delinquent accounts (in other words, after a set number of DMP payments, a creditor may consider your account current, even though you never made up the missed payments). Beginning a DMP will also usually stop any ongoing collection efforts from the creditor (though this may take a month or two).
After establishing the details of your debt management plan with the credit counseling agency you’ll need to make your first full monthly payment.
Once that’s done, the credit counseling agency will send proposals to your creditors. The proposals outline the suggested concessions.
(Why do you pay before the proposals are sent? That’s because most creditors actually require that they receive the first payment shortly after accepting the proposal. If that narrow window is missed, there’s a good chance the proposal will be nullified, which is why the credit counseling agency needs to have the funds available in advance.)
If the proposals are accepted, then creditors will begin to make adjustments to your accounts. If they aren’t accepted, the credit counseling agency will work with the creditor to find a solution.
Either way, the credit counseling agency works on your behalf to establish the best possible repayment terms for you.
Follow the terms
Once the debt management plan is created and concessions are agreed upon, it’s time to uphold your end of the agreement. One of the most important things you need to do throughout the DMP is make your monthly payments on time.
The first step is to call your creditors to change the due dates for your bills. This will help ensure that payments are due after the date you make your payment to credit counseling agency.
This is important because the credit counseling agency needs enough time to process your payment and then pay the creditors on your behalf.
You might also set up deposit direct with your credit counseling agency so the money is automatically deducted from your account every month.
In addition to making your monthly payment on time, you’ll also want to monitor your credit report and keep a close eye on your monthly credit card statements.
In fact, one of the best things you can do is forward the statements to your credit counselor, so you can monitor them together.
Finally, you’ll want to stay focused on your goal and avoid any new credit card debt.
Whether or not a debt management plan is the best way to deal with your credit card debt will depend on a variety of factors. The best way to determine if a DMP makes sense for you is to speak with a certified credit counselor.
Money Management International has trained financial counselors who are able to help. The counselor will take a comprehensive look at your finances and offer personalized recommendations.
Taylor Milam is a personal finance writer and educator who is passionate about helping people overcome debt and take control of their finances.