The biggest challenge when using credit cards is that if you are unable to pay them off in full each month you will stay in debt longer and pay more in interest over time. Most credit card companies charge compound interest daily, meaning your debt continues to grow even if you make payments. If you are only able to make the minimum payments, it could take years—if not decades—to become debt-free. When your balance grows faster than you can pay it off, this can lead to debt snowballing that makes your financial situation feel overwhelming. If things are starting to feel out of control, consider working with a nonprofit credit counselor to save money on interest payments through Debt Management Program (DMP).
Understanding How Interest Accumulates on Credit Cards
Most credit cards use daily compounding interest, meaning interest is added to your balance every day. This method allows lenders to charge interest on both the original balance and any accumulated interest over time, causing debt to grow rapidly if not paid in full each month.
If you only make minimum payments, a large portion of your payment goes toward interest rather than reducing your principal balance. This keeps you in debt longer and increases the total amount you pay.
For example, if you owe $5,000 on a credit card with a 20% APR and only make minimum payments of $100 per month, it could take more than 30 years to pay off your debt, costing you thousands of dollars in interest! This is why many people successfully choose to work with a debt counselor to enroll in a Debt Management Program, which can help them save money on interest payments and pay off their debt faster.
Key Points to Remember
- Pay your credit card balances in full whenever possible – Avoid interest charges by paying your full balance by the due date each month.
- Understand compounding interest – If you carry a balance, be aware that daily compounding interest can cause your debt to grow significantly over time.
- Review your credit card terms – Always check your credit card agreement to understand how interest is calculated and whether there are any changes that could impact your payments.
What Is a Debt Management Program?
So, what if you do not want to wait 30 years to get out of debt? A Debt Management Program (DMP) is a structured repayment plan designed to help individuals pay off unsecured debt—primarily credit card debt—in a more manageable and affordable way. Offered by nonprofit credit counseling agencies like American Consumer Credit Counseling (ACCC), a DMP consolidates multiple debt payments into one monthly payment while also working to lower interest rates and possibly eliminate fees.
In addition to saving money on interest payments with a Debt Management Program, a DMP also simplifies your finances by combining multiple payments into one fixed monthly payment. It is important to note that a DMP is not a loan, and it does not reduce the principal balance owed. Instead, it provides a structured and affordable way to eliminate debt while avoiding bankruptcy or debt settlement.
Who Should Consider a Debt Management Program?
A Debt Management Program is ideal for anyone struggling to pay off high-interest credit card debt. If you have a steady income, a credit counselor can work with you to develop an affordable repayment plan tailored to your situation. Many clients who complete a DMP through ACCC have seen a significant increase in their FICO® Score by the end of the program, putting them in a better position to achieve other exciting financial goals.
If you find yourself in a position where your credit card balances are becoming more than you can comfortably manage on your own, you do have options. A debt management program can save you money on your interest, simplify your payments, and get you debt free much sooner than trying to do it alone!
If you are struggling to pay off debt, ACCC may be able to help. Sign up for a free credit counseling session with us today.
