Depending on your creditors and their repayment requirements on a debt management plan, my estimate is you are repaying between $75,000 and $90,000. For this example, we will assume your debt management plan is repaying a total of approximately $75,000 in credit card debt at an average interest rate of 6 percent interest. Let's further assume you have a total of five accounts with balances of $28,000, $18,000, $15,000, $8,000 and $6,000. When you pull the accounts out of the debt management plan, your creditors will likely raise your interest rates to at least 20 percent. We will also assume you will increase your total monthly payments to $2,000. OK, let's do the math.
Using the snowball method of repayment, you would pay down one balance first while making only the minimum payments on the other four accounts. To make the minimum payments on your four smaller accounts at an average interest rate of 20 percent, you would need to pay $1,253 per month, which would leave you $747 to repay the highest balance account. Your minimum payment on your highest balance account of $28,000 at 20 percent interest would coincidentally be approximately $747, which means you would not have enough money to pay anything on the identified snowball method balance above the minimum payment. If you only make minimum payments, it will take much longer than five years to get out of debt. So, you would get nowhere fast while paying substantially more in interest charges for a much longer period of time.
Of course, this is just an example with many different variables. Your interest rates after coming off of the debt management plan would probably be higher, late and overlimit fees could be reinstated, and you could end up back in collections or court. Not what you had in mind, I'm sure.
As to your desire to have more control over which accounts are paid off first, that's an easy one to accomplish. If you would like to pay more each month on your debt, contact your credit counselor and let him or her know you would like to do that.
If you want the extra payment assigned to a single creditor, let your counselor or customer service representative know that before you send in the money. Send a separate payment, so there is less of a chance the money will just be spread over all your creditors. The credit counseling organization should have the ability to disperse the additional money to your creditors per your desire. Ask to speak with a supervisor if your counselor is unsure or is hesitant to assist you with your request. Be sure not to monkey with your regular payment, as your creditors are expecting a certain amount every month. Extra payments or even complete payoffs can be made at any time and should not upset the dynamics of your DMP.
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