How Do You Do Debt Management So That Will Not Be Trouble

Entering into a debt management program is as much about strategy as it is about getting out of debt.

Debt Management is not Debt Settlement!

In a debt management program you pay your debt in full but at a lower interest rate. As low as 1% and in some cases 0%. As a natural consequence of paying debts in full the creditors do not punish consumers with bad credit reports. Instead accounts in a DMP paid in a timely fashion receive improved credit scores. Debt Settlement is being heavily advertised. In settlement, your credit is destroyed. You will get endless collection calls. All creditors do not accept settlement offers and opt for taking civil action to collect.

Some creditors make debt management more difficult by not having consumer friendly terms for a DMP. A DMP is a way a consumer can pay down their debt faster without ruining their credit.

In a Debt Management Program

- The interest rates are reduced so the any payment made applies a larger percentage to pay down the principal balance and less to pay interest.
- Since the debt is repaid in full, creditors don’t punish a consumer by damaging their credit record. There are no creditor calls, No unexpected IRS tax bills
- Credit scores improve as timely payments are made on the debts.

But…the wrong credit cards can result in much longer payoff times for consumer’s credit card debt relief or DMP becomes necessary.

Specialized Debt Management

Credit consumers often don’t know which credit cards offer the best rates in a Debt Management Program and sometimes run up large balances on the wrong cards.

For example, many store cards like Lowes, Walmart, JC Penney and others are issued by a finance company that does not offer very good rates in a debt management program.

Some of the finance companies behind many of these large department stores only reduce rates in a debt management program by 25 percent.

So if a consumer has an account with one or more of these companies with a high balance of $10,000 that rises to 24 percent, that account can only be reduced to 18 percent in the Debt Management Program.

If the consumer used their Chase card for the same purchases and ran up a $10,000 balance that went up to 24 percent, the Chase account would drop to 6 percent in the program and get paid off much faster.

In a debt management program there typically are no late fees and the reduced interest rates are good until the account is paid off or till the client drops out of the program.

That is the opposite of what happens when a consumer “negotiates” a lower rate with a creditor. In that case any concessions by the creditor are temporary.

Some of the more consumer-friendly banks, as it relates to the Debt Management Program, are Bank of America, Chase, Citibank, Target, Discover, Capital One and HSBC.

Some creditors have varied rates such as Discover and Bank of America; Discover are currently granting a Debt Management rate of 6.9 percent. Bank of America generally grants rates of between 1 percent and 4 percent and accepts a lower monthly payment through a DMP than the others.

The consumer that recognizes the need for a DMP sooner substantially enhances their options are for paying off high interest credit card debt.

If a consumer gets close to 30 percent of their credit limit, they need to be focused on paying down that debt. That is the time to start exploring their options for credit card debt relief.

The sooner consumers seek professional debt counseling the better their chances are of maintaining their good credit rating and finding ways to paying down their debt faster. If consumers seek counseling in the earlier stages of their debt accumulation, they may have the ability to first transfer balances to more consumer-friendly banks.

The bottom line is that credit consumers that seek professional debt management counseling before the pain of debt is overwhelming will be in a position to take advantage options for lowering their debt load sooner.

They may avoid the need of a credit card debt relief program entirely. I hope this information is helpful.