Creditors best customers are the ones that pay the minimum payment forever and never get out of debt. Getting out of debt paying just the minimum payment is next to impossible. The reason is, as your balance goes down your creditors also reduce the minimum payment. You may think it’s good that your monthly obligation has gone down, but the truth is, this is what allows your obligation to continue for much longer than it should.
What is the solution? There are no quick and painless ways to get out of debt. To attack debt, you have to be thoroughly committed to wiping it out. A certified credit counselor can help you identity what the best way to conquer your debt is. A debt management plan might be appropriate depending on your situation. Handling the debts on your own is another option if you are able to.
If your interest rates are high, a debt management plan (DMP) will reduce your interest and possibly your payments while getting your debts paid off much sooner. How is this possible, you may ask? The creditors agree to lower interest rates if you sign up for a DMP, and your payments may be lower because of the lower interest. The best feature of a DMP is that it is a debt attacking machine. Once one of your debts is paid off, you still pay the same monthly payment for a 3-5 year period until all the debts are gone. A DMP is good for people who need structure as well as the support and advice of a qualified counselor.
DMP’s are not the only way to get your debt paid off faster. For those who are determined and financially capable, paying off debts on your own could be an alternative. Unless, of course your interest rates are really high, then it makes more sense to go on a DMP. If you have low interest rates and a sufficient monthly income, creating your own debt destroyer is an option. An easy way to do this is to pay an amount that you can reasonably afford toward the debt every single month until the debt is paid. Once one debt is paid apply that payment to the next debt until all your debts are paid off. This is less structured than a DMP, and also requires payments to each individual creditor each month. In contrast, a DMP combines all your payments into one convenient payment.
It is up to the individual which option will work best, but paying debt down should be a priority to become financially healthy. Imagine, once your debts are gone, how much money you will have to enjoy, save, or invest. The freedom from being chained to your debts will be; as MasterCard commercials state, priceless.
Jennifer Lane is a certified credit counselor and is taking questions I can answer in upcoming articles. Please feel free to e-mail your questions to me at jlane@debthelper.com.
