What Is Debt Management?
A debt management plan is a strategy used to help make repayments on unsecured debt, more affordable. This usually requires a third party to negotiate new terms for repayment, including interest rates, fees associated with the account and monthly minimum required payments. There are many types of programs designed to assist consumers with lowering their debt ratios. The guidelines and methods vary from one to another, so take the time to research which one will be best for you. Before you start, put a budget together. List all of the required minimum payments, interest rates, fees and due dates.
How to Get Started
When preparing your budget, also consider your financial situation. Do you have equity built up in your home, have a 401K or own your car? Write down the dollar amounts so that you are ready to answer any questions you may be asked. Each type of debt management plan has advantages and disadvantages. Be prepared to make some tough decisions once you have accumulated all of the data necessary.
Traditionally, credit counseling services have been able to assist consumers in lowering interest rates and end the majority of the collection calls as long as continual program payments are being made. Their plans are very structured, which some consumers need to successfully reduce their debt. They also have workshops that teach consumers how to manage their money and set realistic budgets. The down side is that, depending on the amount you owe, it may take five or more years to completely pay off the debt. It’s the interest payments, not the amount due that is reduced.
Debt consolidation plans help you pay off an existing debt with a new debt. The advantage to this type of debt management plan is that monthly payments can be significantly reduced, with larger percentages of payment going towards the principle. There is only one payment, so there is no need to juggle payments and dates. The disadvantage is that the debt is not significantly reduced, just the number of creditors requiring payment.
Debt settlement programs use a third party to negotiate lower balances and interest rates on unsecured debt. This type of debt management plan helps provide consumers an alternative to bankruptcy while reducing your outstanding debt by up to 40-60%. To find out more please contact your Debtmerica representative.