When you're trying to eliminate credit card debt, you may be tempted to respond to advertisements for credit card debt management plans.
How These Plans Are Supposed to Eliminate Credit Card Debt
Offered by consumer credit counseling services, these debt management plans will give you a break on credit card interest rates and fees.
These plans also offer the benefit of credit card debt consolidation: You make one payment to the consumer credit counseling agency, and they disburse that money to your creditors for you.
The Problem with These Credit Card Plans
Unfortunately, many of the plans offered by consumer credit counseling agencies today charge you high fees for little or nothing in return.
It used to be that consumer credit counseling services were paid by the banks and creditors under a policy known as Fair Share. But when banks and creditors cut back on Fair Share payments, the credit counseling services began charging consumers fees. Some charge consumers as much as a full month's consolidated payment just to set up a debt management plan.
And in reality, they aren't offering you much more than you could do on your own.
"The creditor concessions are so limited, they are of very little benefit to the consumer," according to John Rao of the National Consumer Law Center in Boston. "Reducing the interest rate isn't going to do much for someone who's principal on the debt has grown beyond their means."
Indeed, there is no reason you can't call the credit card companies yourself and ask for a reduced interest rate. If you've been able to keep up with your payments, it's very likely they'll agree on the spot.
Alternatives For Your Credit Card Debt
Other steps you can take before signing up with a credit counseling service debt management plan:
1) Stop using your credit cards.
When you sign up for a debt management plan, you'll be asked to stop using your credit cards anyway. You'll also be asked to refrain from applying for credit during the term of the plan. If you can kick the credit card debt habit on your own, you won't have to pay anyone else to help you stop it.
2) Assess your situation.
Write down all of the balances you owe on credit cards, car payments, student loans, mortgages and any other loans you have. Now write down the interest rates and minimum monthly payments next to each loan. In this way, you can prioritize which credit cards to pay off first, and which ones to call to ask for an interest rate reduction.
3) Shop around for a credit card with a 0% or low introductory balance transfer rate and transfer your balances to that card.
Be beware: If you do this, you'll need to keep tabs on when the introductory rate expires, or you may find your interest rate jumps up dramatically. Also, you may have to pay a balance transfer fee. (See the Debt Relief Tools article for help in figuring out whether a balance transfer is right for you.)
And if you continue to use your old credit cards after transferring the balances, you'll just dig yourself deeper into the hole.
4) Consider consolidating your student loans.
Generally speaking, student loans don't have exorbitant interest rates. Still, it may make sense to consolidate if you can save money. Just be sure you aren't extending the payoff term, rather than cutting the interest rate. Simple Tuition.com has calculators that can help you see if a consolidated federal student loan is a good deal for you.
If none of these options is right for you, a debt management plan can help. These plans are offered through consumer credit counseling services. To find a reputable consumer credit counseling service, read this article on getting debt help.
Stephanie Gallagher - Stephanie Gallagher is a veteran journalist and author. In addition to writing for Suite 101, she is the Cooking for Kids columnist for ...
