Debt Management Plans

Clarky says first and foremost: listen to your gut, ladies!  If you’re finding yourself with a pit in your stomach, unable to sleep because you are so worried about mounting debt, a debt management plan just might be right for you.  No one wants to be struggling just to make minimum payments on their credit cards or constantly fielding angry calls from creditors! A Debt Management Plan is an agreement you make with a credit counseling agency (CCA).  You agree to pay back all of your outstanding credit card debt over time, without taking on any new debt.  In exchange for your promise to pay your debts in full, most creditors will give you better repayment terms, like lower interest rates and waived late fees.

Another attractive benefit of Debt Management Plans is that once an agreement is in place, those frightening collection calls will stop.  What a relief it will be to just have to avoid calls from that guy you kissed at the bar the other night, as opposed to harassing phone calls from creditors! Debt management plans can also ease the chaos of trying to pay off a million different credit cards at once because they organize your bills into one consolidated monthly payment.  Along with your monthly payment, you pay a monthly administrative fee to the counseling agency (usually around $50 per month) to distribute the funds to cover your various debts.

This might all seem like a nice, neat way to package up your problems, but be aware that the success of a debt management plan depends on the seriousness of the individual.  You need to take advantage of free educational tools that reputable credit counseling agencies offer, as well as make consistent payments. Your credit reports are still negatively impacted by a debt management arrangement, but not to the extent that debt settlement or bankruptcy has on a gal’s credit history.

We stress the importance of finding a reputable credit counseling agency – there are unfortunately many scams out there which prey on desperate consumers. To ensure you pick the right agency, the Federal Trade Commission (FTC) suggests checking with your state Attorney General’s office, local consumer groups, and the Better Business Bureau, when researching which counseling firm may be right for you.  The FTC website is also a great resource for questions to ask when interviewing credit counselors.  Right off the bat, if an organization wants to charge you for educational materials, or tries to push you into a Debt Management Plan before spending time analyzing your financial situation, keep looking – these are red flags for sure!

Debt Settlement Plans

If you are too far gone for Debt Management, but want to avoid Bankruptcy, Debt Settlement may work for you.  It’s for those who want to pay back at least a portion of their debt, but cannot fully pay it back, nor afford a monthly admin fee that most debt management plans require.  A settlement service works with your creditors to negotiate partial repayment amounts for you.  Unlike debt management programs, during settlement creditors often keep calling you about your debts.  Settlement programs also have a more negative impact on credit report than a Debt Management Plan, as you are not paying back all the debt you owe.  But on the bright side, your creditors may view this more favorably than bankruptcy because they’d rather get something than nothing!

Again, beware of fraud and do your due diligence when looking interviewing Debt Settlement Agencies! According to the FTC, creditors are not legally obligated to accept only partial payment of debts, and while this negotiation process goes on you can still be accruing late fees and interest — so be careful!  When looking at firms, Clarky also cautions against thinking that “non-profit” is a blanket term for ‘good guys”!  Sadly, it is not!

Bankruptcy

This should truly be your last resort.  Declaring personal bankruptcy is a legal process, in which a court order declares that you do not have to repay certain debts.  It may sound like an easy way out, but it is anything but! A bankruptcy will stick to your credit report for ten long years. Depending on your age, the next ten years of your life could be when you want to make your most meaningful purchases: homes, cars, and even life insurance!  Clarky specifically warns younger women against declaring bankruptcy unless there is truly no other option.   If you have time on your side, it is worth it to dig yourself out debt!  You need your credit score to position yourself for the future, so while bankruptcy may at times make sense for an older person, us younger gals should try everything we can before we throw in the towel.

Road to Recovery

It takes on average about 2-5 years to get out of debt.  Hey, it probably took you at least that long to get into it!  It’s a lot like gaining and losing weight – it doesn’t happen overnight.  But with some crucial steps towards financial fitness you can trim your debt, get your credit score in shape, and soon be in a position to flex your financial muscle!

**Clarky Davis has more than five years experience in the debt management industry and more than 10 years personal experience with credit and debit cards. Clarky’s money-saving tips have all been tested by the Diva herself, based on her experiences living on a fixed income. She now offers her hard-won insights to others who want to stretch their budgets and tackle debt. Be sure to check out www.thedebtdiva.com for more great tips from Clarky!

**Fabulous & Frugal offers information we hope will be of interest to you, but we are not financial professionals. Always consult with financial professionals who are familiar with your personal financial situation before making any investment or other financial decision. For additional information, please read our Terms of Use agreement and Privacy Policy.

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