Living Happily on a Shoestring: Getting Out from Under Credit Card Debt

Photo by Petr Kratochvil

by Christine Wilkinson

Are you squashed under the weight of your credit card debt? Help is on the way! A debt management plan (DMP) is an option for people who have excessive credit card debt. Depending on your level of debt and ability to pay, debt management plans can range anywhere from a 36 to a 60 month commitment. Your interest rates will be dramatically lowered, but you cannot use your credit cards while on the plan. (If you have considerable credit card debt but do not qualify for a DMP, visit my blog for good advice on how you can reduce your interest rates by calling your credit card companies.)

This is how I set up my DMP. First, I went to a local, non-profit family services agency that offered free debt counseling. (They are swamped, so be prepared to wait several weeks for an appointment.) After the initial consultation, it was clear that I met the qualifications of enough credit card debt/not enough income. I went home with loads of paperwork to complete, which mostly involved listing all my credit card companies and the balances on each. I was then paired with a credit counseling agency, CCCS.

Here are the nuts and bolts of it all: The agency negotiates with the credit card companies so that you get significantly lower interest rates. (I had four cards--two had rates over 30 percent!) The credit card companies really do want you to keep paying, so they’re willing to compromise to get 100 percent restitution on what you owe. In my case, CCCS was able to get all my rates to 6 percent or less. The credit agency also does its utmost to protect your credit rating/score. In other words, working with a DMP is seen as being financially prudent -- paying what you owe instead of defaulting. Most credit card companies do not penalize you for this with a credit dink.

After this, all your credit card debt is centralized through your credit agency. In other words, you will have just one monthly bill and it is paid directly to the credit counseling agency. They in turn dole out what is owed to each of your credit card companies. The agency charges you a monthly fee for their service (in my case $30).

Even as I type this it sounds like mumbo jumbo. Here’s one more attempt at clarity. I am on a five year plan. I no longer pay each credit card company -- I pay CCCS once a month. They pay the credit card companies. During these five years, I cannot use my credit cards. However, A DMP is not something to which you’re contractually bound -- at any point you can leave the program -- but when you do, your credit card interest rates will soar right back to what they had been (and good luck with that!).

My monthly payment is steep, but I have already been in the program for over a year, and it is nice to know that there is an expiration date on my credit card debt. The difficult part, of course, is getting through the five years. For me, the DMP was a life saver. If you want to know more, go to The National Foundation for Credit Counseling.

In a later column, I’ll write about how to negotiate with your mortgage company to get a temporary loan modification. That’s another great option out there for those struggling to meet their mortgage payments. (If you can't wait until next week, you can learn more on my blog.

Follow-up on my August 21 column on grocery deals: Safeway, Harris-Teeter and Giant all have some great specials this week only. Click here for details.



Christine Wilkinson is a veteran middle school teacher, who holds a Master's degree in Education and is currently job hunting. Christine is also a freelance writer who has had articles published in the Raleigh News and Observer and most recently in the Washington Post. She has lived most of her adult life in the DC-Baltimore area, although she recently returned from a three year detour in the South (Raleigh, NC). She is married with a 7-year-old daughter, which prompts her to observe: "While I may be struggling in this economy, I lead a rich life blessed with a great family and amazing friends."