Debt Management Companies

Today, a friend of mine was sharing her decision to call a debt management company.  She has over $20,000 in credit card debt costing her $800 a month in minimum payments.  Obviously, the payments are taking a huge chunk of her typical middle-class income and what's worse - she can't afford to pay more than the minimum payments so it would take her a million and two years to pay it all back.  (That's not a concrete mathematical calculation, just off the top of my head).

Her original purpose of contacting the debt management company was to see if she could get a lower payment each month to help her make the best use of her monthly income.  After all, she got into credit card debt as a result of using them "in a pinch"; because her income doesn't seem to go far enough each month.  Of course, it has only made the situation worse as now she can barely come up with the money to pay their minimum balances, and she's always feeling "in a pinch"!

The debt management company has told her they can reduce the payments to $754 a month, but the real value comes in for how long it will take her to be credit card debt free under their plan:  50 months of payments, less than 5 years, and her credit card debt would be completely taken care of.  So while it isn't going to save her much monthly - the long term savings are tremendous. 

She wasn't convinced she should do it because it isn't going to give much relief monthly on where her income goes- but after a more careful consideration she came to realize that in less than 5 years of continuing to make the difficult payments each month she will be done with it.  If she continues the payments on her own, it can be... well, 33 years to pay it off and almost $33,000 in interest.

Which would you choose?

 

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