Enrolling in a debt management program is an often-overlooked form of debt consolidation. Conducted by credit counseling agencies, these can be a ready solution for people struggling to repay unsecured loans such as credit card debt. However one must make an effort to gain some understanding of debt management to use it successfully.
Here are some of the things you’ll need to know.
How Debt Management Works
Your first step in this direction should always be a consultation with a credit counselor to take stock of your financial situation. While it might seem to be getting out of hand to you, an impartial eye might see a strategy whereby you can actually resolve your situation just by moving a few things around — or maybe just cutting back on frivolities.
If after that consultation it’s determined debt management is likely to be your best approach, you’ll make a single monthly payment to the counseling agency, which will then apportion the money to your creditors based upon arrangements the counselor has made to help resolve your debt. You’ll generally be charged a fee for this service, however that expense is typically offset by the savings the counselor will negotiate in terms of fee waivers and interest rate reductions.
You’ll tell the counselor which accounts you’d like to include, but keep in mind, you’ll be required to close them.
Debt Management Upsides
A debt professional will be working on your behalf to help you eradicate your obligations as soon as your income will permit. They’ll also help you develop budgets and establish financial goals.
As mentioned above, debt management programs generally entail getting your creditors to agree to cut you some slack on fees and interest. This can lower your monthly payments, which in turn will make your debt easier to shoulder to help you bring your accounts current more expeditiously. This will eliminate late fees so more of your money can be put toward reducing the principal loan amount.
Once you’re in the program and payments are going out as agreed, collectors will stop calling because you’ll be up to date. Moreover, working with someone in this fashion can enhance your sense of accountability and help you stay on track to make your credit card consolidation effort successful.
Debt Management Downsides
You may have observed the many references to credit card debt in the passages above. This is because debt management programs tend to work best on unsecured debt of that nature. Secured debt such as car, boat and home loans are usually rejected because the creditor can simply repossess whatever property you offered as collateral for the loan.
You’ll also likely have noted the references to fees. Debt management programs generally have a setup fee as well as monthly fees you’ll need to pay to participate. The exact amount varies from state to state, as well as by the agency providing the service. You might qualify for a fee waiver in some cases, but your financial situation has to be extremely dire for that to happen.
Your access to credit will be truncated while in the program. You’ll have to close the accounts you include, you won’t be able to apply for new credit and your existing accounts might be frozen until you’ve completed the program.
Truth be told though, while this is listed as a downside, the reality is you should avoid creating new debt while you’re executing any sort of credit consolidation strategy. After all, you’ll just be digging a new hole with one hand, while you’re trying to climb out of the old hole with the other.
These are just a few of the primary considerations of which you should be aware. There are a number of others as well. Still, understanding debt management first is key to being successful in such a program.
