Debt Management Plans or Debt Settlement When Bankruptcy Is Not Your Option?

The U.S. Congress Joint Economic Committee stated that revolving consumer debt, which consists mainly of your credit card debt, amounted to $950 billion in the US. This meant that 13.9 per cent of your disposable income went towards servicing card debt. It is important for you as the consumer to seek guidance from a credit counselor in order to decide whether a Debt Management debt settlement is the correct option for managing and writing-off credit card debt. The right decision will help to minimize your cash flow and money problems.

Why Credit Card Debt is Difficult to Escape

According to Tara Siegel Bernard of The New York Times: "If you carry $10,000 on a credit card with an 18 percent rate and make only the minimum payment (say, 1 percent of the balance plus interest), it will take 32 years for you to pay it off — for a grand total of $24,834. That does not count late fees or over-the-limit charges." Also, the temptation is always there for you to spend more and create new credit card debt when family finances are tight.

Control Your Credit Card Debt with a Debt Management Plan

A single monthly payment to a credit counselor is disseminated to creditors on a pro rated basis. Rick Phillips, V.P. of Debt Management Plan Services at Consumer Credit Counseling Service, stated that: "A Debt Management Plan doesn't reduce the balance, but one of the big advantages is that the interest rates go down, usually significantly." The majority of plans clear credit card debt within 3 to 5 years.

How Debt Settlement can Clear Credit Card Debt For You

Debt settlement is different to a Debt Management Plan as it seeks to write-off up to 50 per cent of credit card debt. However, fees of up to 15 per cent mean that 'real' savings are much less. The front-loading of fees can also mean that creditors harass you' for repayment as you receive only a minimal amount for a number of months. FICO scores will also plummet, although they can be improve within a few years provided other monthly credit commitments are maintained.

Whether you chose debt settlement or Debt Management as the right plan for you may or may not depending largely on disposable income and non-exempt assets. Those with unmanageable credit card debt should consult a credit counselor in order to decide which debt solution should be used to alleviate money problems.

I would recommend that you review Financial Destination Solutions for Your Debt Settlement or Debt Management Options.

Sources

Bernard, Tara Siegel. (15 May, 2009) "Weighing the options with credit card debt." The New York Times.

U.S. Congress Joint Economic Committee. (May 2009) "Vicious Cycle: How Unfair Credit Card Company Practices Are Squeezing Consumers and Undermining the Recovery."

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax adviser, or other qualified professional.