Debt Consolidation Programs: Debt Management
If you’re having trouble managing your debt payments and everyday living expenses, you probably feel frustrated, trapped and hopeless. Fortunately a popular debt consolidation service called a debt management plan can help you get a handle on your debt and daily expenses.
What is a Debt Management Plan?
A debt management plan is useful when simple budgeting isn’t enough. A credit counseling agency or debt relief company can negotiate with your creditors to lower interest rates and monthly payments. These lower payments will make it easier for you to pay your creditors.
Only unsecured debts can be handled by a debt management plan. These typically include:
- Medical bills
- Credit card bills
- Student loans
- Payday loans
- Personal loans
Do You Need Debt Management Plan?
A simple home budget is usually enough to help manage small debts and daily expenses. Sometimes, however, finances can get out of hand, and a debt management plan is your best option.
A debt management plan may be useful to you if:
- You have too many bills and are having trouble managing them all
- You’ve had trouble creating your own payment plan or negotiating with your creditors
- You’re in financial crisis and you need to clear your debts
- You want to stop getting calls from collection agencies
- You want to lower the interest rate on your bills
How Does Debt Consolidation with Debt Management Work?
The first step a debt management company will take in creating your plan is to calculate your total debt, interest rates, and monthly payments. Next, they will look at your priority expenses such as food, rent or mortgage, and utilities to determine how much you can realistically afford to put towards your debt. Finally, they will negotiate a repayment plan with your creditors based on what you can reasonably afford to pay.
Once these arrangements have been made, you will send a single monthly payment to your debt management company. They will then distribute those funds to your creditors based on the repayment plan they negotiated.
Pros and Cons of Debt Management Programs
The obvious advantage of a debt management plan is that it will allow you to actually make payments on your debt and avoid being harassed by creditors. By making one single, affordable monthly payment which is distributed to all of your creditors, you will also avoid further damage to your credit.
There are also a few drawbacks to debt management plans. Some creditors will label your account with one or more credit bureaus. This may affect your ability to secure new loans while you are working to pay off your debts. Your credit score may drop a few points temporarily, but should rebound quickly.
How to Choose Debt Management Companies
The first step in choosing a debt management company is to understand how each program works. Some companies will try to convince you that a debt management, debt negotiation and debt consolidation program are all the same thing. Be sure to find out what a company’s debt service does rather than what it is called.
Second, avoid large upfront or monthly service fees. Good debt management companies understand your situation and keep their fees reasonable.
Finally, get everything in writing. If you’ve made a plan and are sticking with it, and your company suddenly decides to change the rules, you can end up doing a lot more damage than good to your credit.