You may have heard of debt management but perhaps not be quite clear what it is or how it can help you to get out of debt. Debt management is a proven system for dealing effectively with certain debt situations, but not all. This article will explain exactly how the process works and which circumstances are appropriate for using debt management.
Debt management is a way of consolidating lots of debts into a regular payment plan, which makes it easier to repay what you owe. This approach is sometimes referred to as debt consolidation, but that can be a little confusing because that term is also used to mean consolidating your debts by taking out new loan to pay them off. Consolidation loans are a completely separate process and should not be confused with debt management.
If you go to a debt management company for help and they assess your situation as being suitable for the process to work, they will set up what is known as a debt management plan. An experienced debt advisor from the company will approach all of your creditors to work out new conditions for the repayment of your debts. The aim of these negotiations will be to reduce or freeze the interest you pay and reduce or waive any other fees and charges that may have been applied for late payment, etc.
When these negotiations are complete, the overall amount that you need to pay out each month should be significantly less. To make things even better, you no longer have to deal with each of your creditors direct. You stop making payments to any of them, and instead just make a single monthly payment to the management company. The plan will last for a fixed period so you will know exactly when you will be free from debt again.
So how do you know whether debt management can help you or not? The process is not something where you can just take a decision yourself to try it. Your financial situation must be assessed by the debt company, after which they will make recommendations to you about the best way forward. You can save time by having a basic understanding of the general requirements for a debt plan to be a viable option.
A debt management plan can only help you with unsecured debts. If you are not familiar with that term, it just means debts that are not secured against some asset that you own, such as your home. Unsecured debts include most of the usual suspects that lead to debt problems, such as credit and store cards, personal loans and overdraft facilities. You cannot include your mortgage or any other secured loan.
Your unsecured debts normally need to be quite substantial, and always to a few different creditors. Some debt companies will accept as little as two creditors, but others require three or more. You are not likely to be accepted if you just have one large debt to one company, or if your debts are less than a couple of thousand.
For a payment plan to work, you need to be able to afford to make and keep on making a regular monthly payment, so it is important that you have a reliable source of income. Your finances need to be looked at carefully in order to be sure that you can to make such a payment after covering your essential household expenses.
If you do not fit the above criteria you may be wondering what else you can do if debt management is not able to help you. If you have a large amount of debt but you do not have the income to be able to afford a decent payment into a debt management plan each month, there are still alternatives that are better than bankruptcy. For US residents, debt settlement is a way of writing off a large part of your debt, but this only works if you are in genuine hardship and can show that you do not have the means to repay your debts. The equivalent process for UK residents is an IVA (individual voluntary arrangement).
If you do think debt management can help you, the first and most important step is to approach a few reputable specialist companies. Using a reliable and effective company is very important, as there are hundreds to choose from, and some of these might well leave you worse off. A good safeguard is to apply to two or three and compare what they say to you. Preferably start with a list of companies that have been recommended as being well established and reliable.