While we are taught a great many things in school, one topic that is of vital importance and frequently under-covered is debt management. Nearly every American has some kind of debt, and with the recent economic troubles, many people are having problems staying on top of their debts.
Even for those who have boosted their income back to or above their pre-recession levels, many are still struggling to cover the debts that they accrued when they lost a job or had their hours cut. It can be intimidating to deal with debts of this magnitude, and, because of the poor financial education we receive, many people don’t know how to manage their debts.
However, there are plenty of solutions to help consumers get their debt under control. One of the most popular solutions are debt management plans. We’ll take a look at debt management plans, and cover some other debt management options to help you get your debt under control.
What is a Debt Management Plan?
A debt management plan is a path to help consumers become debt free. These plans are formulated in conjunction with a credit or debt counselor, or other type of financial advisor. A debt management plan is a strategy for paying down your debt as quickly as feasibly possible, while also sticking to a budget that helps prevent you from accumulating more debt. After all, there’s not much value in making extra payments on your debt if those extra payments cause you to fall short of the money you need for your other bills or essentials like groceries.
Debt management plans come in many forms, and the best debt management plans are those crafted for a specific individual in tandem with a debt advisor. These trained professionals might recommend a debt consolidation loan, debt settlement, or other types of debt reduction products to help you lower your monthly payments, pay off your debt faster, and feel more secure with your ability to make ends meet.
One important aspect of any debt management plan is coming up with a realistic budget that you can stick to. Budgeting your funds appropriately will allow you to know exactly how much money you have to spend on the other things you want and need. Moreover, it will show you how much money you have to put toward your debts. The result is greater financial certainty and an easier time managing your obligations.
Debt management plans are preferable for people who can’t qualify for, or don’t want, other debt solutions like consolidations loans or debt settlement. Debt management plans use the money that you have on hand and your standard income, and determine how to effectively allocate it so that you can create the best financial future for yourself.
Other Debt Management Options
While debt management plans are a great option for most consumers, there are other options that can be used in addition to debt management plans to help make your financial picture a bit brighter. These options can be incorporated within a debt management plan, or they can be sought and obtained in the absence of a debt management plan. It’s important to note that if you choose to seek one of these products, you should also consider a debt management plan to help isolate the behaviors that helped you accumulate debt in the first place so you can adjust your spending and financial habits. Otherwise you run the risk of falling into old patterns and accumulating even more debt, yet again.
Debt settlement should be used as an option of last resort. You may have seen or heard ads that claim to get your debt resolved for pennies on the dollar. The way that the company running the ads attempts to accomplish these goals is through debt settlement.
Debt settlement is a private negotiation between you and your creditors, although you can use an intermediary to negotiate on your behalf. With debt settlement you are essentially claiming that you won’t be able to pay off the full amount you owe, and work with your creditor to come up with a lump sum that they will take in lieu of your full debt. You then start making payments into a special account and stop paying your creditors until you have enough money to fulfill your negotiated settlement.
Debt settlement may sound appealing, but it has several consequences. Your credit score will take a huge hit because you’ll have stopped paying your creditors. Moreover, the settlement company you hire to negotiate on your behalf will take a fee, usually around 10% of the money you save. Finally, your creditors are under no obligation to accept any settlement, so you might not be able to use this method at all.
Debt consolidation is when you take out a loan that covers your current debts. Your lender pays off your old debts, and then you make payments to the lender. The new loan will have a lower interest rate than your present debts, which allows you to pay off your debt faster while lowering your monthly payments.
Debt consolidation thus makes your debt cheaper, and can save you thousands or even tens of thousands of dollars over the course of the loan. Moreover, the process of paying your bills is simplified because you only have to worry about one payment, rather than several different due dates and amounts you get with multiple creditors.
DIY Debt Management
The final option is to attempt to plan and manage your debt yourself. This is usually not the best option, as if you are good at debt management you probably wouldn’t need it in the first place. Therefore, most consumers benefit from advice from a certified financial advisor or debt or credit counselor. If you decide to manage your debt yourself, then you should be sure to take into account the various fluctuations that can happen in your income and expenses, while also being sure to consider the rate at which you’ll be able to make payments. Most people are challenged by this process, so don’t feel bad if you find that a financial advisor or credit or debt counselor become necessary.