Slash Your Credit Card Debt by 60% and Avoid Bankruptcy With This New Program

Image to accompany article on new debt management plan that can help people avoid bankruptcy / Getty Images
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Filing for bankruptcy has major and long-term consequences for your finances. 

But for people who feel like they have nowhere else to turn, it can feel like the only option left. And with the pandemic causing record unemployment numbers, more people than ever are stressed about their debt, and potentially at risk of turning to this solution that will hurt their credit for years to come. 

If you find yourself in this position, the National Foundation for Credit Counseling has a message for you: slow down and take stock of your options.

The NFCC, a nonprofit debt relief organization, has seen people make rushed financial decisions when they feel like their backs are against a wall. Often “people move to bankruptcy with too much haste,”  says Bruce McClary, senior vice president of communications at the NFCC.  

This is an even greater concern now, as many of the safety nets that were initially in place, such as eviction moratoriums and the additional $600 weekly federal unemployment benefit, are gone or set to expire. In an average nonpandemic year, the NFCC’s network of agencies provides services to over 1 million Americans. This year, the organization is projecting over 2 million inquiries in the wake of the COVID-19 pandemic. 

In response to the financial hardship many Americans are facing, the NFCC is offering a new first-of-its kind debt repayment plan that allows those who qualify to reduce the full balance of their unsecured debt — usually credit card debt. This is an addition to a traditional debt management plan, which can also be a great tool to help people pay off their debt. 

The NFCC is a good place to start for anyone needing help, as its member agencies must obtain accreditation from the Council on Accreditation, a third-party nonprofit that ensures compliance with best practice credit counseling standards. An NFCC study found that in the years after counseling, its clients saw an average decrease in debt of $17,000 and a 50-point increase in their credit score. 

Less-Than-Full Balance Repayment 

The NFCC started to roll out its Credit Emergency Relief Program in April, in response to the COVID-19 pandemic. It includes a focus on 60-day credit card payment deferrals for those impacted by the virus, and increased assistance for current and new clients seeking debt relief. 

A key part of this initiative is the agency’s new less-than-full-balance repayment program. The program works to reduce the amount of credit card debt you owe, and can get you to the same clean slate as bankruptcy without hurting your credit long-term. The NFCC says it’s the first not-for-profit debt relief organization to offer this solution for people who otherwise might be facing bankruptcy.

This new program is currently only available to individuals who are determined to be in financial distress and whose accounts have already entered charge-off status. Once accounts are 90 or 120 days past-due, they are handed over to collection agencies and classified as being in “charge-off” status. 

“We’ve had great successes with the program so far,” says Justin Botimer, program manager at GreenPath Financial Wellness, an NFCC-network agency in Colorado.

Anyone who wishes to enroll in the program must first have a session with an NFCC-network credit counselor, for free. The credit counselor will take a look at your entire financial situation: your challenges, how much and what kind of debt you owe, and your income. 

If you qualify for the less-than-full-balance repayment plan, there are currently two products available: reduction of 50% of your balance, and reduction of 60% of your balance. The two options depend on the individual agencies’ relationships with creditors.

While each agency within NFCC’s network structures its programs a little differently, there is usually a one-time activation fee of $45-50 and then monthly fees of $25-30 for the duration of the program, which usually takes 3-4 years. There are options for fee reduction or waivers for individuals in “severe financial hardship situations,” McClary says.

Traditional Debt Management Plan 

While the less-than-full balance program is a great new offering for people in need of help, many more people in less dire circumstances could benefit from existing programs that can help pay down credit card debt in a manageable way. 

A traditional debt management plan (DMP) is a method of repaying debt in which participants benefit from lower monthly payments, reduced or no interest, and the elimination of fees. Credit counselors can negotiate with lenders on your behalf for these and other terms, like an automatic reset of your account from “past-due” to “current” at the time of enrollment. 

For Rachel Melzer, a licensed practical nurse in Minnesota, a DMP will allow her to pay off all of her credit card debt in four years, a feat that would have otherwise taken “at least 10,” she says. 

“It’s the biggest weight off my shoulders,” Melzer says. “Knowing that in just four years I’ll have everything paid off fresh and clean.” 

Prior to the introduction of the less-than-full balance repayment plan, the DMP was the last solution for people before either turning to the for-profit debt relief industry or filing for bankruptcy. But many people are beyond the help of the traditional DMP by the time they seek assistance. 

“As we looked at the debt management plan over the past few years, we realized there are a lot of people who are in a situation of severe financial hardship, where debt management is still not enough to get them through some of their financial challenges,” McClary says.

What Not to Do

Before you do anything, consult a free credit counselor at an NFCC network agency. The counselor can help explain your options and may be able to offer assistance. Know the consequences of your actions before you dive into a solution that comes with bad side effects you could potentially avoid. 


Filing for bankruptcy is a court process that helps people erase debt, but it has long-term effects that will damage your credit. Depending on the type of bankruptcy, it can stay on your credit report for as many as 10 years.

“People who jump into bankruptcy quickly are cheating themselves,” says McClary. “They’re ruling out the possibility that there may be better options for their financial health and future.”

Depending on where you live, filing for bankruptcy can cost anywhere from $1,000 to $2,000, says McClary, and then you still have to deal with the damage to your credit score. 

Part of the process of filing for bankruptcy involves a mandatory talk with a credit counselor. But at that point in the process, it’s too late to change course and consider debt management or reduction. Save yourself the trouble of getting an attorney and damaging your credit prematurely—get credit counseling first.

For-profit debt relief 

The for-profit debt industry, as a whole, is under intense scrutiny from federal regulators.

“It’s common that these programs will advise consumers to do things that are adverse to their already-bad financial circumstances,” says McClary. 

This advice can include things like telling people to stop paying their debt entirely, to ignore phone calls from debt collectors or creditors, and to sign over power-of-attorney so that all communication is in the hands of that company. 

For-profit debt relief companies have advertised less-than-full balance repayment options for some time, but be wary: These programs often require you to deposit money in a savings account for 36 months or more before all of your debts will be settled.

Consulting with a non-profit credit counselor can introduce you to options beyond for-profit debt settlement scams and credit-damaging bankruptcy. Avoid any further financial distress by considering a debt management or debt reduction plan first. 

Bottom Line

With the implementation of the less-than-full-balance repayment program, “we don’t have to send anybody away with the chance that they might fall into the hands of someone who doesn’t have their best interests in mind,” McClary says. 

Whether you think enrolling could benefit you or not, take the first step and get a free credit counseling session to learn your options.

The NFCC is also working to accomplish an unprecedented less-than-full-balance repayment plan for accounts that are in pre-charge off status. Currently, creditors have to force an account into charge-off status in order to settle it. 

McClary says the NFCC aims to roll out pre-charge-off less-than-full-balance repayment before the end of the year.