Is a Debt Management Plan Right for You?

By | May 11, 2018

If the world were divided into spenders and savers, I would end up squarely on the side of the spenders. Whether I bought dinners out or e-books or clothing or DVDs, I could justify the expense as a necessary comfort because, after all, life is hard and we need comfort.

Unfortunately, the predilection for charging my comforts throughout my cash-strapped waitress/college days led to a massive amount of credit card debt.

Almost a year and a half ago, I realized my debt was becoming unmanageable.

I had as many credit cards as I have fingers (with a debt total creeping scarily close to the median salary of Oklahoma City) and keeping up with each payment and due date (not to mention late or over-limit fees) cut into the time for enjoyment of all the entertainment I had purchased.

At this point, I had a few options. I could try to pay the debt off myself, using the philosophies of Suze Orman or a similar financial guru to get my debt under control. I could enter a Debt Management Plan (DMP) and have an outside company make payments to my credit card companies on my behalf.

Debt settlement, wherein outside companies try to “settle” your debt for a small percentage of what is owed, is a choice some make to deal with their debt. Or, I could file for bankruptcy.

I did try to pay off my debt myself many times. I would pay off a card or two, but inevitably, a so-called emergency would come up and the card would come out again.

Before I knew it, I was in just as much debt (or more!) as I had been before I began my payoff plan. I was yo-yo financial planning – cutting some debt and then gaining back more to the chagrin of my unhealthy checkbook.

Call it old-fashioned ethics, or maybe just pride, but I didn’t want to choose an option other than paying back my debt in full. I understand when people are hit by unexpected events such as medical emergencies and they have to take drastic measures. But I just spent too much. I gave in to my wants and desires more than I stuck to my budget. I also knew I could pay it off, even if it took a little restraint on my part.

As you can probably infer from this article’s title, I chose the DMP option. I’m still only about halfway through the program, but it’s working for me so far. The program is not for everyone, however.

How to determine if a DMP is right for you:

1. Can you repay all of the debt you’ve accrued?

Unlike debt settlement programs or bankruptcy, you will have to pay the entire principal owed on your credit cards. And, while you can often negotiate low (or zero) interest rates while you’re repaying the debt, the finance charges and fees incurred up to that point must still be repaid.

2. Can you stop using credit cards?

In exchange for reducing interest rates and agreeing to a set monthly payment, credit card companies expect you to stop using your cards. Most companies disable any available credit while the debt is being repaid; in any case, you must agree to stop using credit when you sign up for the DMP. It only makes sense: if you keep using credit, you’re never going to get out of debt (believe me, I know).

3. Are you willing to set aside a consistent monthly payment?

Before I entered the DMP, I had become a master juggler of debts and payments. I moved payments around according to when I had the money to pay them, and my credit card payments were split between my paychecks. Now, I pay all of my credit cards in one chunk which is electronically debited from my account. It’s more consistent, and easier to plan for, but it does lack flexibility.

4. Can you stick with it for the long haul?

You must be patient. It may take a while to pay off your debt with a DMP. Some clients get frustrated with the slow process and give up. Once you quit the DMP, however, you also lose the benefits (low negotiated rates and no collection calls, for example).

5. Do you have money for emergencies?

Unfortunately, I don’t have enough money in my savings account for lunch. Well, maybe lunch, but that’s it. Thankfully, I haven’t had any financial emergencies (knock on wood), but it’s something you should think about. Since you can’t rely on credit if your car breaks down or the washer breaks, it’s a good idea to have some money set aside for any unexpected disasters.

If you decide you want to try a DMP, first look around for reputable companies. Search the Better Business Bureau and look for online reviews from former clients. For my program, I pay a monthly fee ($40) for the company to pay all of my credit card payments, negotiate my interest rates, and keep an online running total of what is owed on each card.

Once I finally got serious about my debt and shredded all of my credit cards, I got used to and even enjoyed living a cash-only existence. Any time I get discouraged about the amount I owe, I log on and compare my starting debt to my current debt and marvel that I’ve managed to actually pay down (and pay off) some credit cards. I may not have completely tamed my spending impulses, but at least now my purchases are cash only.

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