• Lower your monthly payments
  • Reduce stress and live your life
  • Avoid personal bankruptcy court

Pros and Cons of Debt Management

Debt consolidation can be made into one monthly payment via a debt management plan – making it easier for a person to pay their debts off more easily by changing the payment plan they have. There is also the option of a debt consolidation loan – financial experts tend to recommend debt management – but both are good but debt management provides a better solution to your debt than a loan does.

Pros and Cons of Debt Management

5 good reasons to use a credit counselor

One of the best pros of using a debt management plan is that you will have the help of a credit counselor. The debt management plan actually starts with credit counselling and before you decide if the counselor is going to manage your debts you will go through the counseling process beforehand to make a decision on whether it is the route you wan

Up to a $50 service fee

When you use a debt management plan you should be charged a service fee up to $50 per month. You don’t usually get charged for the counseling as it is generally free, however debt management isn’t. You must ensure you are careful when you choose a debt management company or a credit counseling agency. There are a lot of companies out there that try to scam and trick you out of your money – so ensure you are careful when you make your choice. Start by looking at the NFCC (National Foundation for Credit Counseling) and the Better Business Bureau (BBB) – both are reliable organizations – and find out if a company you want to use has had any complaint from previous clients. When you choose a company that’s right for you, here are some benefits that you will receive.

  • Expertise in negotiation and debt relief – you will use a DMP to reorganize the payments of your debt. Credit counselors will aide you to plan this. They will also send the payment plan to you creditors and ask them to allow you to do it. In other words they will negotiate your offer with the creditor. Generally it involves a smaller payment each month and you will not gain any penalties. They may also discuss a lower rate of interest with your creditors.
  • Counselors have a good relationship with creditors – a credit counselor tends to have a good relationship with creditors, making it simpler for you to get agreement on your debt management plan that you and your counselor have come up with. They will also ensure that your plan does not exceed what you can afford.
  • It won’t ruin your credit score – as you are not asking for a debt reduction if you stick to your plan your score will not worsen – in fact it will slowly improve.
  • Credit cards will be frozen – if you have a credit card in your DMP the creditor will freeze it so that you cannot add any further debt to it. This will stop you from getting into more debt and will end when you finish the DMP.
  • Simple personal finance skills – the best pro of debt management is that you will receive simple skills in personal finance to stop you getting into debt. Such as, saving, smart pending, budgeting and other things.

Five cons of debt management plans

A DMP can assist in your credit problems but it is not always suitable for everyone. In order to use a debt management plan you need to have the correct temperament and qualifications. Below are five reasons as to why a DMP might not be the right solution for you.

  • Not available for all types of debt – DMP’s are only available if you have credit card debt, unsecured loans, other personal loans and medical bills. A debt management plan cannot be used on student loans or secured loans. You won’t be accepted onto a DMP if you don’t have the right kind of debt.
  • You still pay for everything – if you are in need of a debt reduction it may not be for you. Although you will be paying a lower amount the balance you have is drawn out over a longer period of time, so you still have to pay it all back.
  • You need a stable income – A DMP entails you to have a stable and steady income or you will not be able to support the payments.
  • Lower interest is not definite – although you will be getting a lower monthly payment, you may not get a lower interest. Bear this in mind so that you are not let down if the creditor does not agree to lessen the interest rates.
  • You won’t be out of debt quickly – A DMP takes roughly five years as you are making smaller payments so advancement will be slower. In order to have a quicker way out of debt you must make your monthly payments larger or simply choose a different debt management program. 

A Guide on Credit Card Debt Management

So many Americans find themselves in the same situation regarding their debt. They have too much debt and no idea how to eliminate it. Credit card debt makes up the largest portion of debt in most homes. A credit card debt management plan can help you to eliminate some of your debt.

When people find themselves in debt, they tend to be unsure of how to eliminate their debt without getting further behind. It can be very important to some to not influence their credit score any more than it already has.

A Guide on Credit Card Debt Management

The Basics

Follow your payment schedule on time. In order to help your credit score or eliminate your debt make your monthly required payment on time. Late fees will only increase the amount that you owe. Making sure that your account never goes into default is very important.

Communicate with creditors. Whenever you are on a credit card debt management plan it is important to keep your creditors informed. Many times, you find that they have options to help you when you are in need. Ignoring creditors can only make your situation worst.

Pay off credit cards not just pay them down. It is important to a credit card debt management plan to pay off the debt. Eliminating the credit card debt should be the first goal of any good debt management program.

Committing to a plan is the next part of being successful in eliminating your debt. No matter the choice that you make in reducing your debt, be sure to commit everything you have to it. The only way that true success is achieved is through making payments on time and working with your creditors.

Refinance your credit card debt. It can be beneficial to discuss with your creditors the ability to modify your terms to have a fixed payment. This can help when budgeting and trying to determine what you have in extra monies.

Tactics Too Know

I can be important to know some optional tactics to helping you when creating a credit card debt management plan. These tactics might help you to reduce your debt faster or improve your credit score. Each of these tactics requires you to create a budget. Determine where you can cut expenses allowing you to have extra money every month above what your normal basic monthly bills are.

Consolidation Loans

If you still have decent credit you may be able to gain a low interest loan. With a loan, you are able to pay off all the littler debts and then only have one fixed payment. This method can reduce your debt the fastest, because you will be able to negotiate with your creditors to reduce the balance due for lump sum payments.

Debt Snowball

This tactic is one that is designed to keep you motivate by showing the quickest results. This is done by adding any extra money from your budget on top of your minimum payment. However, the trick is to pay off your smallest balance first. When you do this, you will see the results, by losing one card quickly. Then you are able to add that monthly payment into the budget and start over with the next card. This is not always the best option for some, because you are not looking at the interest rates.

Debt Avalanche

This credit card debt consolidation tactic requires a budget as well, however the cards are going to be listed based on their interest rates not the balance owed. Any extra that you have in your budget is going to be applied, above your minimum payment, to the creditor with the highest interest rate. By reducing the highest interest rates first, you are adding more money back into your budget when the debt is paid off. This can sky rocket the ability to become debt free faster. You can lose motivation with this plan, because you do not see fast results.

The Debt Hybrid

This plan relies on your ability to visualize. Take your debt and reduce it to manageable amounts. This might mean that the balance of one card is divided into three amounts. Pay each part off separately. This will allow you to feel accomplished because of your small goals, however it does not actually finish paying of the card until the third goal is complete. This is beneficial because with smaller goals you can pay off your highest interest rates first. You will still feel accomplished because you are meeting those smaller goals. This may not be the program for you if you are unable to able to “pretend” while making imaginary goals.

Having a credit card debt management plan is the most important step to your success. Without a plan, you will not be able to eradicate your credit through the most advantageous plan for your needs.

The Rewards And Dangers Of Today’s New Credit Card Policies

Stack of credit cardsDo you carry one or more credit cards? There was an article recently on the website of WPRI.com that reminded me that they these new policies represent both dangers and rewards.

The rewards

Many of the credit card companies will reward you if you pay your statements when due or pay more than the requisite monthly payment. These rewards can be interest rate rebates or even cash back. Their purpose is to give you an good reason to pay off your credit card debt.

Be careful with rewards cards

With a rewards card if you carry forward a balance just two or three times a year, you will be charged higher interest. In fact, it will generally exceed whatever you’re accumulating in rewards.

Dangerous habits

Some credit card companies’ policies can actually make it too easy for you to lapse into unsafe habits. For example, if you have a problem paying your bill, you might be spared penalties and late fees. You would think this was a good thing but it may not be. The problem is that when you make a late payment, it will go into your credit reports. And this will probably lower your credit score.

How to make the most out of your credit card

There are some things that you can do to get the most out of your credit cards. First, before you sign up for a card evaluate its incentives. Second, if your card came with an interest-free introductory period, pay off your balance before that period expires. Third, make sure you pay your balance in full each month. As noted above, some credit card companies will reward you for good behavior. On the other hand, others may charge you a late fee if you do not pay your bill within 60 days. Even worse, if you exceed that 60 days, your APR might take a bad hit.

If you’re having a problem with credit card debt

Even if you’ve amassed a huge amount credit card debt, you do have options. For example, you could transfer your high interest credit card balances to one with a lower interest rate. If you’re carrying balances on more than one credit card, you need to add up the interest rates you’re paying and then divide this by how many credit cards you have. This will give you an average interest rate. If you find you have an average of 18% or higher, you might be able to transfer all those balances to a new card with an interest rate of 12%.

A 0% interest credit card

If you could qualify for one of the new 0% interest balance transfer cards, this would be an even better option. This is where you transfer all your balances to a new card and pay no interest for an introductory period of six, 12 or even 18 months – depending on the card you choose. All the money you pay each month would then go against reducing your balance. If you were able to heavy up on your payments, you might be able to become totally debt free before your introductory period expires.

Choose debt settlement

If you’re having a really, and I mean really, big problem with credit card debts, you might choose debt settlement. This is also often called debt negotiation because what it requires is for you to contact your creditors and negotiate settlements for less than what you owe. If you’re at least six months in arrears on your payments, you might find the credit card companies would be willing to settle with you. You would have to be a good negotiator to pull this off and you would need to have the cash available to pay for any settlements you were able to negotiate. This would leave a black mark in your credit reports but not as severe a one as if you were to declare bankruptcy.

Click here to read the complete WPRI.com article.

You Might Need A Credit Counselor If …

Payment overdueI read an article the other day that I thought would be helpful to people being pummeled by debt. The article appeared on Bankrate.com. One of the points it made was that if you haven’t had much success coping with debt on your own, you shouldn’t necessarily feel bad about it. Some people are able to shed weight on their own through dieting or by working out regularly but others need the help of a health club or a fitness trainer. So, how can you know whether or not you need the help of a credit counselor? Here are some questions that could help you figure this out.

If your credit card balances are going up while your income is going down

This can be a sure sign that you need some credit counseling help. It’s tough enough to get out of debt if you can keep both it and your income stable. But if you have the two going in opposite directions, you may have a very hard time dealing with that debt on your own.

If you’re paying only your required monthly minimums

Credit card companies just love it when you pay only the required minimum monthly payments on your accounts. The reason for this is because it can keep you in debt practically forever. I saw one example recently of where it would take 28 years to pay off a $10,000 credit card debt if the cardholder made only the minimum monthly payments.

If you’re juggling bills

An example of juggling bills is if you were to get a new credit card and then take a cash advance against it to pay off an existing card. This can start a vicious cycle where your debt ultimately spins completely out of control. The only exception to this is that if you were to do a balance transfer. Transferring the balances on credit cards that have high interest rates to one with a lower rate can make sense – assuming you don’t immediately take a cash advance on the new card.

You’re close to the limit on all your cards

This is not only financially dangerous but can have a nasty effect on your credit score. This is because 30% of your score is based on “credit utilization.” In turn, this is based on the ratio of your debt to the total amount of credit you have available. Supposing that you had $15,000 in credit card debt and a total of $20,000 in available credit (the total of your credit limits). In this case your debt to credit ratio would be 75%, which is way too high and would have a very negative impact on your credit score.

If you’re working overtime to keep up with your payments

The fact that you’ve taken on extra shifts at your work or a second job speaks well of how seriously you take your financial responsibilities. However, this can lead to a lot of physical and emotional stress and can even have a bad impact on your family.

If you don’t know how much you really owe

Sticking your head in the sand and refusing to figure out how much you really owe will only get you deeper and deeper in trouble. You might want to ignore those debts but your lenders won’t. If you ignore them long enough, you could be sued and have liens put on your property.

Do you see a pattern?

It’s not critical if you saw yourself in several of these instances. What would be critical is if you could see a trend. As an example of this, making the minimum payments on your credit cards occasionally might not be a cause for concern. But if you’re making only the minimum payments and are close to the spending limits on your credit cards, you might be a candidate for credit counseling. This would be especially true if you also don’t know how much you really owe.

For more information on this subject, you can read the entire article on Bankrate.com by clicking here.