Debt management is learning to live on a budget day by day, no matter the cause of your debt.
Debt management plans help people decrease and eliminate debt. The plans work best with "unsecured debt," or debts such as credit cards, bank overdrafts and personal loans. "Secured debt," such as mortgages, rent and utility debts, cannot be included in a debt management plan.
Debt management plans are necessary if you have too much debt. If you cannot meet your monthly payments, your creditors will record it on your credit history, which may lower your credit score, decrease your ability to find a new loan or take out new credit cards, and increase your interest rate.
If you're a do-it-yourself individual, you can create your own debt management plan by prioritizing necessary expenses such as mortgage or rent, food and utilities such as electricity bills.
Debt management with credit counselingOr, you can sign up with a credit counseling company that can help you with debt management. Companies often charge an upfront administration fee to handle your debts for you. Debt management companies can negotiate with your unsecured debt lenders to reduce your total owed or lower your monthly payments. But you must pay on time every month.
One strategy that some credit counseling agencies may suggest for debt management is debt consolidation. With debt consolidation, you roll all unsecured loans into one low-interest, fixed-rate loan. But you must have excellent credit history and an asset, such as a house or car, for this debt management approach to work.
It can take many years to effectively reduce your debt through debt management. Debt management isn't a quick fix. However, actively managing your debts is preferable to declaring bankruptcy, which can impact your credit score for up to 10 years.
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