What is debt management? Debt management is another option for credit card debt relief. It is a standard financial term that is used to describe the process that involves a third party to assist a debtor with regards to the repayment of their debt. Credit counseling is usually offered in debt management plans to help people who have a heavy debt burden, as well as damaged credit, to control their financial situation. The easy and simple definition is: the routine practice of spending less than you earn. It is the mere fact of living on a day to day budget. It helps in decreasing and the eventual elimination of debt. It is structured with a plan. The plans are usually good for people with unsecured debts, those which are typically linked to bank overdrafts, personal loans and credit cards.
How does it work? The credit counseling agency will be the one to perform the financial assessment, which is the first step in debt management. They will help you in identifying the root source of your financial problems. After that, a certified counselor will then work with you to create what is known as a debt management plan or debt repayment plan. Generally, the debt settlement agency or company will work side by side with your creditors. They will keep creditors aware of your financial situation so as to assure them that you are not running away from them. The counselors will be the one to contact the creditors as you are supposed to have manageable monthly obligations based on your present financial status. Basically, it works via negotiation of a new repayment structure plan for the existing agreed credit debt. It is both convenient and cheaper for the creditors as well as the debtors.
What are the negative effects of debt management?
Compared to debt settlement, the negative effects of debt management are as follows:
– Interest repayment increases – It takes a significant amount of time to be free from debts – Expensive option for some – You have the ability to break the terms with the existing agreed credits – You will be sued by your creditors in the case of not paying the debt – Credit rating may possibly be harmed
– There is a possibility that you will be in debt for a very long period of time
What are the positive effects of debt management?
The positive effects of debt management are as follows:
– The debt management plan is flexible – Responsibility is presumed when you choose this option – You do not need a debt management company contract – The debt management company deals with the correspondence from creditors – It is an informal arrangement – There is a possibility to freeze the interest payments
– Monthly debt repayments decrease
In conclusion, this kind of debt relief system may or may not be the right choice for you depending on the kind of financial dilemma that you are currently facing. It is best to seek expert advice based on your own personal circumstances.
Dr. Amarendra, the guest author though doctor by profession, he likes to writes on debt management and other finance related topics at various blogs.