You may have come to a point in your life where you see bills piling up, student loans lingering and letters from creditors coming more frequently. Face it, debt management as your only escape from the mounting debt you have accumulated. Getting out of debt is a long and arduous road, but continuing to ignore your debt will only make it worse. Knowledge of the process is a crucial piece to the debt management puzzle, and it will protect you from having the wool pulled over your eyes. Debt management is not as complicated as you might think, but if you don’t know the basics and go in completely blind you won’t know when something suspicious happens. The list below will answer all the questions you may have about debt management and provide you with the confidence you need to take that first step.
- What is a Credit Counseling Agency?— The main priority of a Credit Counseling Agency is to instruct you on how to efficiently eliminate your debt. They are a team of specialists who work to get you out of debt in the most efficient manner possible. Once you contact them, they will look up all of your accounts and use their knowledge to develop a Debt Consolidation Plan, which is a major part of debt management.
- What is a Debt Consolidation Plan?— In simple terms, a Debt Consolidation Plan combines all of your debts and balls them into one. In most cases your credit counseling agency will work out a deal with your creditors and wipe out all your interest. By doing so all you’ll have to pay off is the balance you began your debt consolidation plan with. After everything is set up, your debt management is ready to roll and a Debt Consolidation Loan will be set in place to pay off your final balance.
- What is a Debt Consolidation Loan? — Once you have your Plan in effect, you’ll need a Debt Consolidation Loan
to cover the amount your Credit Counseling Agency has worked out for
you. This is essentially one big loan to pay off all of the small ones,
and your payments will coincide with the budget your specialist has
worked out for you. Debt Consolidation Loans are the wheel that makes
Debt Management run, but if this is not an option for you then Debt
Settlement may be an alternative.
- What is Debt Settlement? — Debt Settlement should be one of your last options for a Debt Management plan. When you have defaulted on your loans (not made payments in at least six months), you will be contacted and offered a settlement. They will present you with the option to only pay around half of your outstanding balance, but at a cost. It will scar your credit report for years to come and impact any future attempts at getting a loan. If you have a lot of defaulted accounts and no money to pay them off, your only debt management move is bankruptcy.
- What is Bankruptcy — This will eliminate all of your outstanding debts, but Bankruptcy carries a heavy burden. It stays on your credit record for at least 10 years, and will essentially remove you from all consideration for a future loan. This is should your last resort in debt management, and you should consider every other option before you decide to file Bankruptcy. There are many other ways of debt management that can only hurt your credit image a little bit, so only use this option if absolutely necessary.
