Debt management and debt consolidation are two personal finance management strategies. Understanding the types of debt and finding ways to pay off what you owe quickly is debt management; debt consolidation is finding a company that rolls all existing debt balances into one large debt, creating a single monthly payment.
Budgets
Creating a budget is the biggest step in debt management. Tracking each cash inflow and outflow for a household helps determine where money can be saved to pay down debt.
Debt Snowball
Dave Ramsey, a conservative financial adviser, suggests creating a debt snowball for managing consumer debt. Each debt is listed from the smallest to the largest. Minimum payments are made on each debt except the smallest, which is paid off first with any extra income.
Debt Consolidation
Debt consolidation is provided by companies that roll all outstanding debt into one balance. Consolidation can help you negotiate with creditors on repayment methods and terms.
Early Settlement
Extremely old debt can be negotiated into a single early settlement amount through debt consolidation. Early settlement can help you quickly solve a financial crisis if properly handled with credit agencies.
Credit Counseling
Credit counseling can help you determine the best way to pay off consumer debt. Most credit counselors recommend debt management over debt consolidation; you should be careful when choosing a counselor to be sure that he understands your needs.
Extra fees may be charged by debt consolidation companies, furthering the debt load for individuals. Several debt consolidation scams also exist, creating more potential problems for financially strapped families and individuals.
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