Debt management may be a solution for consumers who are deep in debt and finding it difficult to escape the crushing load of monthly bills. In debt management, a debtor hires a counselor to help pay off their debt by negotiating lower payments or interest rates. Ultimately, you must make your own decision if debt management is right for you.
Do You Have Money To Make Payments?
To make a debt management program work, you must have enough income to fund a repayment program. A counselor will probably be able to negotiate better terms or interest rates for you, but you will need to be able to make regular payments to your creditors. After you meet with a counselor and you find that you do not have sufficient income to fund a repayment program to pay off your balances, you may want to consider bankruptcy as an alternative.
Can You Budget Your Money?
Even if you have income enough to fund a debt management repayment plan, you will need to be able to make a financial plan, or a budget, to ensure the plan is paid correctly and on time. A debt counselor can sit down with you and develop a working budget. They can also help you by collecting your debt payments and sending them to your creditors automatically before you see the money. If you cannot hold onto money to fund the plan, you need to deal with that issue before initiating a debt management plan.
Can You Stop Spending?
Although this is similar to budgeting, it has some key differences. Many people continue to spend on credit cards while they are trying to get out of debt. When you enter a debt management plan, your creditors will probably close your accounts, keeping you from charging new purchases. If you are used to spending money at will on credit cards, this may be beneficial, as it will force you to live within your means. Still, it might be a more appropriate idea to practice before entering the plan, and try limit your credit card spending for at least a couple of months.
Is Most Of Your Debt Unsecured?
Debt management or credit counseling plans only work with certain types of debt, mainly unsecured debt, such as credit cards and personal loans. Creditors who have loaned you money on homes or cars are not likely to work with a debt management plan, as they can repossess their collateral and recover a portion of their money if you default. If a secured lender repossesses the collateral, sells it and you still have a remaning balance, this is known as a deficiency balance. This is unsecured and a debt management company can work with it. If most of your debt is secured, the debt manager will probably be unable to help you.
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