Debt management implies working with a credit counseling agency which creates a realistic plan that can help you get out of debt. Typically, you deposit money each month with this agency, which in turn uses it to pay your unsecured debts on your behalf according to a payment schedule you agree upon.
Also, when you get on a debt management plan, your creditors may also agree to waive certain fees or lower your interest rate, helping you get out of debt even faster.
That’s all nice but what about the fine-print? Here are 7 things you should know about debt management:
1. Debt management is a process
As in — it is not JUST a loan. Yes, it requires that you take another loan to service your existings debts, but it also includes a specific program abiding to which will let you to repay your other (older) loans/debts.
So, in addition to taking another loan, debt management also involves creation of a long-term plan to pay off the loans you already have. Which leads us to the next point…
2. Debt management can take up to five years to complete
It all depends on the amount you owe and your ability to repay that. This ability involves your skill level, education, employability, market conditions and other factors.
Generally speaking, debt management takes anywhere between 2 and 5 years to complete, with the longer timelines being reserved for those with the most debt. At the end of the process, you should have little to no debt to deal with.
3. Debt management will teach you how to save
If you already don’t know how to save — and really a part of Wallet Weekly is about that, so check it out — you may benefit from the debt management process by learning how to save every month. The idea is to make this a habit which will then follow you throughout your life. Therefore, every good debt management plan includes advice on how to regularly leave some cash on the side. Also as part of the plan, you will move excess funds resulting from lower monthly payments into a savings account.
In other words, a good debt management process will teach you a lot about money management issues and that is something you will be able to take with you long after your debts have been repaid.
4. Debt management is NOT free
Despite the fact that users requiring debt management services are those in great debt, these sort of services are not free. And that kinda makes sense since someone has to pay for all the labor that will be involved in helping you come up with a plan. Plus, let’s not forget the interest payments — companies providing debt management services are in this for the money.
Even if we’re talking about non-profits, you will have to pay something in order to get your personal debt management plan.
5. Debt management may help you increase your credit score
It is important to realize that debt management is NOT debt settlement though it could include that part. And “that part” involves talking with your creditors, either by you or an intermediary, to negotiate your debts down so you can pay less than what you owe. If this happens, your credit rating will plunge.
In contrast, the “regular” debt settlement — which doesn’t include debt settlement — will see you paying your bills on time and re-paying all your creditors, with only one (debt management) loan to deal with. This in turn will have a positive effect on your credit score.
6. Debt management is not for everyone
Some folks may be in such dire straits that their only option is to go for a debt settlement or, worse yet, file for a personal bankruptcy.
Generally speaking, debt management is suited for people whose credit card debts are $7,500 or less, although there are plenty of exceptions.
7. You can do it yourself
The main goal of debt settlement is to add discipline to your daily routine and help you save more every single month. Companies and nonprofits offering these sort of services provide customers with one debt to settle their other debts and have only one loan to deal with.
If you know what you’re doing and can discipline yourself, you could get such loan for yourself and steadily get out of debt. Come up with a plan and follow through. It won’t be easy but it is one ride worth taking.