Is credit card relief little help? Check out debt management
As cardholders experience financial difficulties due to COVID-19, some credit card issuers are promoting their hardship programs.
Once a well-kept secret, these programs are now more prominently advertised, offering things like deferred payments and lower interest rates. But not all cardholders will qualify or receive favorable terms.
If you’ve been denied COVID-19 relief, if it’s insufficient, or if your relief terms are expiring, consider turning to a nonprofit credit counseling agency. Credit counselors may be able to help you with get-out-of-debt options — among them, possibly, a debt management plan, which rolls several balances into a single payment at a lower interest rate.
“It essentially works as a consolidation loan without creating a new loan,” says Thomas Nitzsche, a spokesperson for Money Management International, a nonprofit credit counseling agency.
Here’s what to know about this kind of assistance.
Hardship programs vs. debt management plans
Credit card hardship programs are ideal for balances that can be paid down over a few months. Terms vary by issuer, and relief is generally granted on a case-by-case basis. To determine your eligibility, you must contact your card issuer.
Debt management plans are better suited for longterm debt that can take up to five years to pay. They consolidate different balances like unsecured loans, certain kinds of medical debt and credit cards into one payment at a fixed rate, according to Nitzsche.
You wouldn’t go through your card issuer directly for such a plan, but a third-party credit counseling agency may suggest it for you, if you qualify, and set it up with the issuer. Credit history isn’t a factor for eligibility, but you do typically need a regular income to show you can contribute payments that meet the plan’s terms. One missed payment may dissolve a debt management plan.
There are also usually fees involved with a debt management plan, which can vary based on factors like where you live. But fees may be negotiable, and your savings will typically outweigh the cost.
‘I don’t have to talk to the creditors anymore’
Unlike a hardship program, a debt management plan may also save you time. For Helen Kerins, a New Jersey-based YouTuber at the channel Krazy Kerins, the best part was letting the credit counseling agency negotiate with issuers. “I don’t have to talk to the creditors anymore,” she says.
Kerins, 42, had already used a debt management plan in her 20s to pay off creditors, but she acknowledges that afterward her habits didn’t fully change. By 2016, though, her priorities were different as a wife and new mom, and she was determined to tackle almost $44,000 in debt.
She contacted a credit counselor and submitted credit card statements, account numbers, contact information and other details. Together they discussed her options over the phone and determined that a debt management plan was fitting. (Credit counselors may offer other options or resources for budgets in the red.)
After the agency reached out to Kerins’ credit card issuers, she got a significant break on interest, and her monthly outlay toward that debt fell sharply, too.
Before, “I was paying close to like $700 or $800 a month in just my credit cards,” Kerins says. The debt management plan got that figure down to about $475 a month total, and that included the $25 monthly service fee charged by the counseling service.