The financial definition of debt management is the creation of a repayment plan completed by the individual debtor with involvement from a third party debt management service. The idea is to generate a realistic repayment schedule based on the debtor. In addition, a debt management plan can teach debtors valuable money management skills that will aid them in sticking to a reasonable budget after their debts have been paid off.
When seeking debt management assistance, you should always know what to look out for in order to avoid the unscrupulous services that have sprung up in the wake of debt management programs in the United States. Many of these so-called “debt relief” services are actually more interested in taking your money to line their own pockets rather than pay your creditors off.
This article will give you the information you need to know what a good debt management plan should look like and what a good credit counselor should offer you. The ultimate goal of enrolling in a debt management program is to pay off your debt in a time frame that makes sense for you. Anyone that offers guarantees or promises that seem too good to be true should be avoided at all costs.
Do you need debt management?
Admitting to yourself that you can no longer meet your financial obligations can be embarrassing, but in order to figure out whether you actually need debt management services it’s very important to be honest with yourself. Can you keep paying a little more than your minimum payment each month? Is your monthly income enough to keep up with your debt without falling behind on living costs? If so, debt management may not be the right choice for you.
That said, most people that are seeking debt management have already fallen behind on payments and suffered damage to their credit score. In that case, the first step is to make an appointment with a reputable debt management service organization. Credit counselors employed by such organizations will be able to review your finances and assist you in formulating a realistic solution to their debt problems. The most common of these solutions are debt management plans.
Steps to Creating a Debt Management Plan
A debt management plan is typically created following a few steps.
The first step is to assess the amount of debt you owe. The debt management professional will compile a list of your debts, creditors, and interest rates, thereby creating a clear picture of the total debt owed. The second step is to go over your monthly income and expenditures. Secured debt, such as home and loan payments, will be included in this step. After creating a detailed list of both debt and income, the counselor can use this information to generate a realistic repayment plan based on what you can actually afford to pay.
Using this information, the credit counselor will also contact your creditors and attempt to negotiate a deal that will lower your total debt. Often they will agree to freeze interest rates or settle for less than the total amount owed. Creditors are like any other business: they would prefer to receive regular payments from their customers rather than chasing them up through the court system. The credit counselor can act as an advocate for you when working with. Part of debt management services is taking over correspondence with the creditor, which is a plus for individuals who have neither the time or inclination to contact the companies themselves.
After these steps have been completed, the debtor will agree to deposit a certain amount with the debt management service, which will then disperse that money to the appropriate creditors. While enrolled in the debt management plan, the debtor might be required to not take out any more credit until the plan has been completed.
The Definition of a Good Debt Management Plan
A good debt management plan has one aim: getting you out of debt. This isn’t an easy or fast process, but it will work if you are committed to paying off your debt, month by month. Beware of any debt management service that claims to eliminate your debt in a short time period. The typical plans takes 48 months or more to complete.
Possibly the most important thing you should look for in a good debt management plan is that it has been created specifically for you. There is no one-size-fits-all approach to debt management. The credit counselor should review your finances and assist you in creating a budget that is based on your monthly income and expenditures.
Don’t fret if enrolling in a debt management plan lowers your credit. This is just a part of regaining control of your finances after taking on too much debt. By enrolling in such a plan, you are effectively breaking your original repayment contract with you creditors. The upside is that debt management plans demonstrates responsibility and commitment, which your creditors will look on favorably after you have completed the program. In addition, by sticking to the plan and continuing to meet your obligations each month, your credit score will increase.
Finally, a good debt management plan should always be delivered to you in writing. This will give you the opportunity to look over the details of the plan and decide whether or not you want to participate.
How to Find a Debt Management Service
Finding a reputable debt management service isn’t difficult with the right information. Several national organizations exist that offer accreditation to debt management services. The most prominent of these are the National Foundation for Credit Counseling and the American Association of Debt Management Organizations. Both these organizations have high standards and require ethical business practices for admission. You can use their databases to search for an accredited, well-regarded debt management service in your area. You can also check with the Better Business Bureau to make sure the organization hasn’t been registered as a problem business in the past. Finally, the Justice Department also has a website where you can find debt management services that are in line with federal regulations.
Sources:
American Association of Debt Management Organizations
National Foundation for Credit Counseling
Debt Management 101
Justice Department approved Credit Counseling Services
