BALTIMORE — Interest rate hikes are making it harder for consumers with credit card debt to pay off their balances, and with high inflation, many are racking up more debt.
A debt management plan is a lesser known option than debt consolidation or debt settlement, but it has helped Johnika Dreher pay off over $70,000 in debt and lose over 50 pounds.
Four years ago, Upper Marlboro’s wife felt in debt with tens of thousands of dollars spread across 8 different cards.
“We walk into this house that’s so huge, we had to furnish it, our son was 2, all these new things we have to buy, and we just saw things skyrocket,” Dreher said.
The overwhelming feeling of that debt became overwhelming, so Dreher spoke with her bank who recommended Money Management International (MMI), a nonprofit credit counseling service.
“In a debt management program, creditors agree to reduce interest rates to around 6.4% and plan to pay off debts in around 4 years on average,” said Thomas Nitzsche, media director and brand for Money Management. International.
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It’s different from debt consolidation, where you take out a loan to pay off a debt and the interest rates vary based on your credit, and it’s not debt settlement or bankruptcy, which can damage your credit.
“Because there’s such an awareness of loans, it’s usually what most people gravitate towards just because they know they exist, but functionally a debt management plan is pretty much the same where you make a fixed monthly payment. The interest rate is fixed at this reduced lower interest rate and lasts a maximum of 60 months, but the average customer is on 48 months,” Nitzsche said.
It took Dreher 49 months to pay off all of his debt. His interest rates were reduced to an overall average of 9%, negotiated by MMI, saving him about $120,000.
“They take the guesswork out and really tell you – here’s what you need, we’ll go behind the scenes, set up a payment plan for you, we’ll put all the logistics in place to let vendors know that’s what you do,” Dreher said.
Under the program, Dreher had to give up all of his credit cards and refrain from opening new lines of credit. MMI also charges setup fees and monthly fees
“Their fees are so minimal and it’s built in, I think it was less than $50 a month,” Dreher added.
The sacrifices and discipline resulted in lifestyle changes for Dreher, helping him lose weight financially and physically.
“I started the program at the beginning of 2017, I think it was February, I was just over 200 pounds at that time and in all the discipline you can’t do a lot of things because you don’t “I didn’t have a lot of money. I started exercising at home and using YouTube. I lost 55 pounds by the time I went for my next medical,” Dreher said. You mentally change your mind to think about what’s going on, what I want, what I value, and I started to see money very differently. When you can’t lean on it, you have to lean on other things, so exercise helped me out.
Although the Federal Reserve has raised interest rates twice this year, those hikes don’t impact the deals creditors have with consumers who go through nonprofit debt management. However, if a customer fails to make a payment, the creditor can abandon the plan.
Debt management plans only cover unsecured debt such as credit cards and personal loans, not mortgages or student loans.
And you don’t need a credit counseling agency to lower your interest rates. Call your lender and see if they’re willing to work with you, then also talk to an advisor to compare the rate they’re offering.
Consumers should work with nonprofit credit counseling agencies accredited by the National Foundation for Credit Counseling (NFCC).
Click here to find an NFCC agency near you.
And click here for more information on other ways to pay off debt.