Overwhelmed by Credit Card Debt? Enroll in a debt management plan.

If you can’t convince the credit card company of your financial hardship, or don’t see a path to a financial recovery, you may be able to reduce interest rates and payments with a debt management plan (DMP).

Many different companies administer these types of plans, some of which have gotten a bad name for poor service and missed payments to creditors. You need to be sure to work with a reputable company – a safe bet is a non-profit Consumer Credit Counseling Service (CCCS), given that designation by a certifying organization such as the National Foundation for Credit Counseling (NFCC). You can find these CCCS organizations by logging on to the NFCC web site and locating one near your residence (try the CCCS of Raleigh if you live in Joe SuperSaver’s Raleigh, NC area).

With a DMP, you’ll make a single payment to the CCCS each month, which will include payments to all creditors and a modest monthly processing fee. The CCCS acts like a middleman, processing the payment and passing it along to the creditors for timely posting. Creditors will offer a fixed interest rate and a payment based on a fixed percentage of the outstanding balance on the card. They compute the payment so that the entire account is paid off in about 5 years. You won’t see a drastic change in payments – if you had been paying $1000 per month in credit card payments, you will not a see a reduction down to $200 or $300, for instance. As a rough calculation, total up all your credit card balances and multiply the number by 2.5% to get a ballpark range for a monthly DMP payment.

These plans work best when you are already behind on payments and you are being slapped with high interest rates, high minimum payments, and late and overlimit fees. All future junk fees are waived once you are accepted into the plan, and the creditor will start reporting to the credit bureau that payments are being made on time, even if you were previously delinquent.

The biggest obstacle to a DMP is affordability. A legitimate CCCS will require you to prove that you can afford the payment by submitting your income and expense breakdown to the creditors. This protects you from being saddled with yet another debt that you can’t afford, but not everyone will be able to squeeze that single payment into their budget.

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