Debt management is a method for managing your d using financial planning and budgeting. Administered on your behalf by a credit counselor, management can get concessions on your debts in addition to helping you pay them off more effectively.
Here’s what you need to know to get the most out of debt management.
- The first step is to sit down with the counselor and figure out how much you owe. Include every debt that’s not secured (car loan) or unsecured (credit cards). You’ll also want to add up any closing costs, such as the balance transfer fee if you’re transferring credit card balances.
- Write a list of all your debts in order from smallest to largest. This will make it easier for you to track your progress over time and create a payoff plan that works best for you.
- Your counselor will then begin working with your creditors and inform them you’ve enrolled in a debt management plan. They will ask to have your interest rates lowered and accrued fees waived to make paying off the debt easier.
- You’ll then send the monies previously directed to your creditors to the counselor who will manage the payments on your behalf. Some people consider this a form of debt consolidation, as you’ll consolidate all of your payments into one. You can learn more about how this works at https://www.bills.com.
- Expect your counselor to hear from your creditors within 30-60 days about whether they’ll go along with the proposed debt management plan. Once an agreement is reached, each creditor will send a letter of confirmation.
- In most instances (depending on the size of the balances and your ability to pay) your debts should be paid off in full within three years. In most cases your credit reports should show that they’re having their balances eliminated by way of payment plans or settlements.
- While working the debt management plan, try to avoid incurring new debt.
- Since things can happen that are beyond your control, it’s important to consider what you’ll do if one or more of your creditors doesn’t agree to work with you on the terms of the plan. You’ll also want to begin building an emergency fund to cover unforeseen expenses without resorting to high-interest credit card debt.
- Do everything possible to stick to the terms of the agreement. Your counselor can only help you if you follow through and hold up your end. The beauty of a debt management plan is the structure it adds to resolving your debts. However, you can do yourself more harm than good if you flake out of a debt management program. In fact, you can actually make your situation worse and have limited remaining options available (none of which are especially favorable) to resolve your debt problem. Make sure you only agree to something with which you know you can keep up.
- Find the right debt management plan for you and your current financial situation
- Find a credit counselor
- Develop a budget that is feasible but also effective in reducing debt
- Have realistic expectations of what can be done with your debt management plan, if anything at all
- Keep up with the changes in your debt management plan to ensure it works for you rather than against you
- Reduce expenses wherever possible to make more monthly payments on your debts
- Do not open any new accounts while under debt management
- When completed, your credit reports will show a zero balance
Debt management is a proven strategy for getting potential runaway debt back in hand. Getting the most out of debt management involves planning carefully, paying close attention and being consistent.