Friday, August 28, 2009

Managing Debt Without a "Debt Management" Plan

Debt management plan involves you depositing money with an organization, which pays off your unsecured debt such as credit cards. Debt management plan, at best, manages your existing debt, but usually at the cost of ruining your credit history. Foremost, I don't like debt management plans because I don't want to pay for anything that I can get for free.

Many me(s) with debt go to a debt management plan, primarily due to lack of payment discipline. If you decide to do so, please check beforehand Federal Trade Commission's information on debt management plan.

Here is alternate free debt management plan in 7 steps.

1. Call and ask your bank(s) to lower the interest rate(s). If a customer service agent is not helpful, call again couple of times. Trust me, quite a few bank will at least knock of few percentages.

2. Open a separate bank account in a different bank.

3. Choose credit cards (or other debt) you want to pay with this system.

4. Direct deposit a portion of your income enough for a minimum payment+$x for each debt.
(Amount of $x depends on how fast you want to get out of debt. High interest and/or low balance debt should have higher $x. My suggestion is make $x maximum and readjust $x once you pay off one account completely.)

5. Automatically set monthly payments.

6. Destroy the ATM card, credit card, check or any other method that will allow easy access to the money in new bank account and old credit card accounts.

7. Adjust and check your new debt management plan every first sunday.

PS. If you still want to pay someone, I accept paypal.


  1. This is good information...I agree, if the person on the line with the credit card co. says no when you ask for a lower rate- just call back (even that day), you'll get someone different, and maybe they will be a little more giving. Cute comment at the end-that you take PayPal-assuming you were kidding- or if not- that's still a good line! Fun to read!

  2. It's impossible to get out of debt without a plan. With all of the questions that need to be answered such as:

    1. How much is my net income?
    2. What do I spend my money on?
    3. How much will I save if I stop spending to much money and the most important question how much do I owe?

    These and other questions need to be answered and a detailed plan must be in place to be able to take appropriate action or it would be link throwing darts with a blindfold on.

  3. These are good tips. People can end up in financial distress for several reasons. I think that medical reasons account for a fair number of people who have expenses.

    The thing is, when it is due to something that someone else should have taken care of, there is more that you can do about it. When something just goes wrong-diabetes for example, you have to manage the costs yourself. However with proven personal injury and a good lawyer, you actually have less to worry about.