How Much Debt Do I Need For The Debt Management Program?
The straightforward answer to that question is simple: There is no minimum or maximum amount of debt to qualify for a debt management plan.
The real question you should be asking is: Are you comfortable managing your debt payments every month, or are you missing payments (or paying only the minimum) just to stay afloat?
If your head is barely bobbing above the bills every month – and it feels like you could go under at any moment – you have enough debt to enroll in a debt management plan.
Our clients had an average debt of $14,622 in 2016, but the debt range for people we have served goes from as little as $1,000 to more than $100,000. The average income for our clients is $33,443. Nearly one in four (23%) has debt over $20,000.
Why a Debt Management Plan Helps
Every household’s financial situation is unique, thus there is no one blanket solution to throw over all problems and say: “That will fix it!”
However, if you are floundering financially and seeking a solution that you can handle with the income you have, you should make a call to a nonprofit credit counseling agency and ask about their debt management plan.
A good debt management plan will lower you monthly payments by reducing the interest you pay on credit card debt and come up with an affordable payment program that eliminates your debt in 3-5 years. In many cases, consumers can see their interest rate cut to 8%, or even lower.
Another step consumers must take with a debt management program is to freeze all but one credit card. That not only removes the temptation, it also allows you to start chipping away at the balance on those cards. Debt management programs typically allow clients to keep one credit card active for use in an emergency.
When Debt Management Is a Good Solution
It’s rare that someone stops and asks themselves: How much debt do I have?
People routinely ignore the warning signs of financial disaster and hope the situation takes care of itself. Not a good strategy!
High interest debt, like credit cards, is the primary reason consumers use a debt management program. In most cases, multiple credit cards are involved, but other forms of high-interest debt could be payday or car-title loans, medical bills, personal loans and private student loans or any loan that has no collateral backing it.
There are signs that you’re in over your head with debt when:
- You use your credit card for every day purchases like food, gas or even a haircut because you don’t have enough cash to pay
- You have so many debts that you are late with payments because you can’t remember the due date for each bill
- You make only minimum payments on credit card bills
- You borrow money from relatives or friends to pay bills
- You feel like you have enough income to cover your bills, but you still struggle to keep up with monthly payments
- The interest rate on your bills is so high that making the minimum monthly payment doesn’t even reduce the balance you owe
Those are all obvious signs that a debt management program would help you.
Added Benefits of a Debt Management Program
The goal of every debt management plan is to eliminate your debt, but there are other benefits clients pick up along the way.
InCharge credit counselors work with credit card companies to reduce the interest rates on your cards and to have late fees waived. The average interest rate on credit cards in the summer of 2017 was 15.6%, but most consumers with financial problems pay 25% or higher interest. InCharge is able to reduce most people’s rate under 8%.
Another benefit is learning how to build and use a monthly budget. Less than 40% of American households operate with a monthly budget, which is the foundation of any successful financial plan. InCharge credit counselors go through all expenses and income and help devise a budget that reflects what you can actually afford. This is a helpful tool long after you have finished the debt management program.
Finally, there is a delayed benefit to your credit score. At first, your score will take a hit because you must close some credit card accounts. However, by the time you reach the third year of the debt management program, and the number of on-time payments has been recorded, your score should improve, sometimes dramatically.
When Bankruptcy is a Good Solution
If you have overwhelming debt, relative to your income, InCharge credit counselors may recommend you pursue bankruptcy. Our goal is for you to achieve lasting debt relief. If we determine that we cannot provide you with an affordable monthly payment and your debts are too large to pay off in five years, we may provide you with contact information for bankruptcy attorneys in your region.
Get Help from a Certified Financial Counselor
There’s no one-size fits all solution when it comes to debt. InCharge will provide a free credit counseling session and recommendations based on your personal situation. Whether you have $1000 in debt or $100,000, a Certified Financial Counselor can help you better understand your budget and recommend tools, resources and programs that can help you achieve debt relief.