“DMP” Archive
Jun
20
Yesterday I received the letters from Citibank detailing my repayment plan for three of my credit cards, representing nearly 33K of my debt (Diners Club is a Citibank product and is also at 0%). As I mentioned in an earlier post, Citibank worked out a great deal with me; 0% interest over 5 years. Obviously I will try and repay this much quicker as I get any additional income from my side businesses, but the payments are very manageable and nearly $125 less, per month, than the DMP suggested payment. With much of my debt either at 0% or in settlement negotiations (AMEX), the question is do I still need a DMP?
The amount of debt that is still ‘out there’ without any concessions is approximately 15K, consisting of apporximately $6,500 with CHASE, $7,000 with Bank of America and the remainder with AMEX on a closed account with a much smaller, manageable balance and interest rate. I have two other cards with limits of $1000 or less than currently have a zero balance. So, the question is do I still need a DMP or can I pay these cards off on my own, protecting my credit score a bit. I have been, and continue to pay all these cards on-time so keeping one or more of these accounts open as I pay them off, could help protect what is left of my credit history/score.
Currently CHASE is at 7% but that was only a temporary relief measure for 3 months so that card will go back to 29.99% next month as I was late a few months back by 2 days; no reporting to the credit bureaus but CHASE put me at the default rate. Bank of America is at 16.24%, AMEX at 18.29%, both of which, while high, are certainly manageable given the balances. So, my plan is to contact Chase directly and hopefully work out the same plan, 7% interest, that the DMP would give me. If I am successful with that, I will keep the Bank of America account and the two other cards with smaller limits, open so I still have some sort of credit history.
If successful with CHASE, I could effectively avoid a DMP. Frankly, thus far, I have been able to secure better deals with all my creditors than the DMP offered, which is somewhat surprising given the credit counseling agencies are funded, in part, by the credit card companies. That said, credit card companies typically return 15% of the money they receive through DMPs back to the agencies, so perhaps this is the incentive for working directly with the creditor.
So, next step is to try and work something out with CHASE. In the past CHASE has been one of the creditors least likely to be flexible, much like AMEX, but given that I have worked out plans with almost all of my other creditors, I may have some leverage with CHASE. Their reluctance has typically been the fact that I have other debtors and they felt they would be at a disadvantage by working directly with me. Well, that clearly is not the case anymore, so hopefully I can work things out with them. Stay tuned. I will be making the call today and hope to update my readers by the end of the day.
Jun
11
Today I took a vacation day in order to get the final details of the DMP proposal to my creditors (for those accounts that are open and not already with the collection agencies, i.e. AMEX). I’m glad I had this meeting as it was both an eye opener from a budgeting perspective and somewhat of a relief to see that if the proposals are accepted, my interest rates will be knocked down dramatically. As my readers know, I was paying as much as 32% on some of these cards and now the top interest rate for a given card will be 9.9%. I’ve had prior dealings with the creditor who is charging 9.9% and in my case they knocked it all the way down to 0%, so I’m hopeful they will do this again. So, the good part is that my interest rates are lower, payments each month are only slightly lower, but the bulk of my payment will be applied to the principal. According to the DMP estimate, I will be debt free in 53 months given the current plan. This doesn’t include any additional payments I make from my side income and annual bonus, all of which can be directed to a specific creditor as long as I notify the Credit Counseling Agency how I want the money directed.
Now for the bad news. The bad news is that given my current budget and child support obligations, I have less than $100 cushion every month. This does NOT include any of side income because it hasn’t been reliable enough to include in a monthly budget worksheet at this point. I, unfortunately, have a leased car so there isn’t much I can do in terms of getting out of the lease early and avoiding those payments for the next 12 months. I have frankly cut just about everywhere I could with one exception; my current apartment.
In an earlier post, I posed the question of ‘To Move or Not to Move’, and I had decided at the time that sacrificing a quiet, stable apartment and decent neighborhood would not be a good idea, unless absolutely necessary. Well, it looks like it WILL be necessary. Rent eats up a good deal of my budget each month, and while my apartment is new and nice inside, it frankly isn’t worth what I am paying for it. I won’t go into specifics of what I pay each month, but suffice to say I can save probably $300/month by moving to an older place in a different neighborhood that might involve a longer commute. Since I plan on utilizing public transportation at least 75-80% of the time going forward, as long as there is bus access within walking distance (or a Park & Ride within 2 miles or so), I am going to move. Until I can rid myself of my car payment and have a reliable second income source, my budget is just too tight should something unexpected come up. This budgeting exercise was also a reminder of how important an emergency fund really is!
I’ll keep you updated on the search for a new apartment but given I have the day off, I think I will make good use of the time and hit some of the places TODAY!
Jun
11
As I mentioned, I hope to finalize the details of my DMP this week so I can get the ball rolling on lower interest rates, a fixed payment that fits into my budget and a truly noticeable monthly reduction in debt. The plan and my budget are all made assuming that my salary is the only source of income that I have. That said, I will have a fairly decent bonus payout come September and my side income from the blog, my travel agent bookings and another potential side job should get me another $750 per month or so. The question is, how will I use this money to eliminate my debt. I actually need to inquire how ‘extra’ payments will work with the DMP. The best idea, at least from my perspective, is to use a snowball approach with the extra side income. I just need to ensure that paying extra directly to creditors won’t mess up the details of the DMP. I would imagine it wouldn’t but I do need to check. The first step with any side income will be to find a $2500 Emergency Fund but once that is complete I do plan on using a debt snowball to accelerate the DMP. I’m actually quite excited to be so close to having a real plan in place to deal with this debt. I’m actually looking forward to using ONLY my debit card and cash for my day to day existence. I should probably look into what banks have good rewards for their debit cards since I will be using mine so much. I wonder if I could somehow use my debit card to pay my rent and get frequent flier miles in the process. Anyone know if you can buy a money order with a debit card (using it as a credit card, i.e. no PIN). I could score myself almost enough miles for a free ticket to visit my daughter if this were possible.
Anyway, stay tuned this week for the details of the DMP. Again, I wont be able to reveal all the details regarding individual balances but I will be able to provide interest rates and the monthly fixed payment amount, which from the look of things is a lot but is manageable.
