While there are many financial terms that people should familiarize themselves with in order to become more proficient in handling their money, "debt management" is a particularly important term to know about. Below you will find a basic description of this term as well as others that are often associated with it, such as debt consolidation. Learning more about these terms and their significance can help you make informed decisions that enable you to thrive economically.
Understanding Management
Debt management is a highly specific, customized financial strategy designed to help a debtor manage his or her debt. Generally, a debt management plan is created and implemented by an outside organization or company for the debtor. Debtors can solicit these types of services for many reasons, including a lack of knowledge regarding how to manage debt or a general feeling that professional assistance will help them eliminate the debt faster.
While some people may feel that they possess the knowledge and skills necessary to manage and subsequently eliminate debt, others find that attaining assistance from professionals is appropriate and advantageous.
Unsecured and Secured Debt
Generally, debt management plans are most effective when used to handle unsecured debts. Some types of unsecured debts include personal loans, bank overdrafts, and credit cards. Unfortunately, debt management services are typically not applicable for secured debts like utility and rent debts or mortgages.
Timelines
An individual can seek out debt management services at various points in his or her life. However, people typically seek such services when they can no longer make their monthly payments. When this happens, adverse consequences, such as a lowered credit score, can be the result. Additionally, an inability to pay one's bills in a consistently timely fashion can result in an inability to attain a loan or open a new line of credit or maintain low rates on existing credit cards.
The Process
When an individual signs up for debt management services with a credit counseling company, several things will typically be a part of the process. First, the company will typically review the charges that will be involved in the services provided, such as administration fees. Once the debt management process begins, companies may negotiate fees from your unsecured debt lenders in order to decrease your monthly payments or total balance. Typically, these negotiations will involve financial commitments on your part.
Debt Consolidation
Because many debt management companies incorporate debt consolidation as a part of the debt management services they offer, many people confuse the terms. In short, debt consolidation is a process that involves compiling each of your unsecured loans into a single fixed-rate, low-interest loan. In order to attain this service, you will typically need to have an excellent credit history or a significant asset like a car or house.
Conclusion
Although it can take several years to reduce your debt, attaining debt management services can help shorten the process. However, it is more advisable to actively manage your bills and budget in order to avoid the need to attain debt management services.
