Debt Management Plans : The Basics Explained
Most people, at some point in their lives, take out a loan or two to pay for purchases. Generally this isn’t a problem as they can pay the money back quickly, but sometimes it can lead to you having a series of loans that you struggle to pay back. If this sounds like you, then you could probably benefit from a debt management program to help you manage your money and deal with the debt so you can stop your problems from spiraling out of control.
One common program for debt management is what’s known as debt counseling. This is a really good option if your finances have just started to spin out of control and you need to get a hold on them. It involves sitting down with a professional to discuss your debt problems. You will look at the reasons why you have ended up in debt, your financial commitments, and what you can do to make sure the problem doesn’t get worse. It will help you introduce lasting changes to eradicate your debt.
Another common type of debt management program is debt negotiation. This can reduce your debt to around 70% of the total through negotiating with your credit card companies and other creditors to come up with a deal for your debt. This process is generally done through a third party who negotiates on your behalf. The third party then pays your creditors for you, and you pay them one monthly payment. Debt negotiation is intended to work so you pay your creditors less than you actually owe them.
Next up is debt consolidation, which is also a popular debt management solution. The idea here is to simplify the payments you’re making so you’re only making one per month to a consolidation company rather than lots to your creditors. You recruit the debt consolidation company to compile all your debts into one payment and manage things for you. They’ll often help you reduce the amount of interest you’re paying through negotiation with your creditors, which in turn reduces your debt.
Debt consolidation loans are one final option in our guide to debt management programs. These work by taking out a larger loan that covers the value of your smaller debts. You then pay interest on this big loan and make one payment a month. It’s a good solution if you can afford a larger monthly payment but you can run the risk of losing your home as many of the loans are based on home equity, meaning there can be problems if you don’t keep up the monthly payments.
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