What is Debt Management?
Debt management is a debt relief solution that involves a designated third party to assist a debtor to repay his or her debt. Most companies that provide credit counseling services offer debt management plans to help people with heavy debt and damaged credit get their financial situation under control. In a simple term, debt management is a structured repayment plan set up by a designated third party, either as a result of a court order or as a result of personal initiation.
A debt management plan entails a series of steps that must be followed by the debtor to work their way out of debt. The first step typically involves compiling a list of all creditors and the amounts owed to each. Some creditors are not eligible to be included in a debt management plan, and typically, secured debt such as car loans and home loans are not included.
After a list of creditors has been compiled and the total of debt has been calculated, next step in a debt management plan is list down the debtor’s total incomes and expenditures which include mortgage, car loan payment, cost of living and monthly expenses. With all these data, the debt counselor will help the debtor to determine the maximum amount of money available to allocate to the plan for debt repayment. Once the repayment structure agreement by both creditors and the debtor, a debt management plan will be drafted out into an agreement which must be followed by the debtor to repay his/her debt accordingly.
However, it’s important to understand that participating in a debt management plan will still impact your credit score, and that any available credit may be inaccessible for a period of time. But, enrolling into a debt management plan can be the best option for many debtors who are at risk of bankruptcy.
When privately seeking the assistance of a third party debt management service, make sure that they are registered with the Better Business Bureau and that they are not charging unreasonable service fees to set up your debt management plan. A small, nominal fee is to be expected for debt management services, but it should not be based on a percentage of your debt or be a recurring monthly charge. The service should help you regain financial control, not put you further into more debt situation.
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