What Does Debt Management Do?

The majority of people dealing with debt are using next week's paycheck to pay last month's bills. Debt management helps you to get a hold of your spending as well as your saving. You must evaluate all monies coming in and going out before you will ever see your debt eliminated. Debt management does this and sets you on the right path to financial freedom.

Evaluate Finances

Before you can eliminate your debt, you must know exactly how much you owe. Debt management calculates your monthly expenses and compares it to your monthly income. The information gathered from this comparison gives you a tangible figure for your estimated debt. Debt management then categorizes your unsecured debt, secured debt and living expenses, along with your assets and current revenue. It evaluates all the facets of your finances, and guides you to the most appropriate course of action.

Create A Plan

Debt Management Plans vary depending on a person's financial circumstance. Individuals whose debt heavily outweighs their revenue may require other solutions, such as debt relief or consolidation loans. On the other hand, if your monthly income is more than your monthly expenses, then a Debt Management Plan is put into place. With a DMP, you deposit funds into an organization's account, and the organization works with creditors on your behalf. According to the Federal Trade Commission, a successful DMP requires you make regular payments on-time, and could take 48 months or more to complete.

Negotiate With Creditor

A big part of debt management is debt negotiation. Consumer debt negotiation is when the creditor and the debtor agree on reduction of current debt owed. Before you begin, consider if negotiating is an option. If you cannot regularly pay a percentage of your total outstanding debt, bankruptcy may be required. Collectors do not like when consumers file bankruptcy. If you file for bankruptcy, debt collectors get nothing, so use that information as a negotiating tool.

Increase Credit Score

Successful debt management raises your credit score. Although time consuming, if done correctly you can be debt free in under five years, according to the Federal Trade Commission. You make on-time payments to the creditor, and the creditors regularly report the activity to the credit bureaus. Over time your debt decreases and your score increases. The goal of debt management is to create a lifestyle that does not need debt relief.