Is a formal debt management plan the answer?
We might be saying so long to 2016, but many Americans won’t be starting the new year with a clean slate. They face months -- and years -- of credit card bills for purchases made this year and earlier.
According to a recent article in USA Today, the average credit card debt for households with a balance tops out at more than $16,000, a total that’s been growing by 10 percent during the past few years.
At a time when many Americans are grappling to afford just the basics, a figure like that seems insurmountable as wages stagnate, good paying jobs are hard to find and other bills for medical procedures and higher education mount. In fact, $16,000 is more than 30 percent of $52,000, the median household income in the United States.
There are options for debt relief. If debt from credit cards and other sources is out of control, bankruptcy could be a way out. So could a formal debt management plan.
A debt management plan is a payment plan that you create with the help of a credit counseling organization like CESI. As part of the plan, you and your creditors agree to consolidate your payments into one. Credit counselors typically are able to lower your interest rates so that you’re able to pay more toward the principle with each payment and more quickly pay off your debt.
Here are four things to consider as you decide if a debt management plan is right for you
Can you pay off your debt by making changes to your lifestyle? For instance, could you make big cuts to your budget such as nixing all meals out or moving to a less expensive home? Do you have assets that you can sell off to raise money to pay off your debt? If the answer is yes, it’s time to live frugally and get rid of things that you don’t need. It’s always best if you’re able to take care of your debt on your own.
Or, is there nothing to cut from your budget or sell? If so and you can afford at least the minimum credit card bill payments, a debt management plan might be right for you.
Are you ready to live without credit? During a debt management plan, participants lose their existing credit cards and typically agree not to sign up for any new ones as they work toward living debt free. That could be tricky for people who might need to pay for a hotel room or a rental car, purchases that usually require a credit card.
Are you ready to get real about your debt? There are plenty of downsides to missing a payment toward any debt, but it can quickly spell disaster for a debt management plan. If you miss a payment or are late, creditors could revoke the payment plan and you’d lose out on any benefits, such as low interest rates, that you’d worked so hard for. If you’re not certain you’ll be able to make your payments on time, it might be best to consider your other options.
Whatever you choose, set up an appointment with a credit counselor first to ensure you’re making the right decisions for your future.
