What is debt management? Debt relief methods explained

A simple definition of the term debt management is any action or method used to help a person manage their debt. While this definition is quite broad, it includes services such as debt consolidation, debt settlement, bankruptcies, personal loans, as well as any other techniques that can help consumers deal with outstanding debts.

When talking about debt management, the term debt consolidation is most commonly spoken of. The idea behind debt consolidation is this: A consumer enters a program that allows them to lower their monthly payments and interest rates by combining all of their outstanding debts into one large debt. Then, once a month, the individual makes a payment to the consolidation company, which in turn is responsible for distributing the corresponding funds to the corresponding companies. The theory behind this is that the customer pays lower interest rates and at the same time simplifies the payment process, since only he or she no longer has to make payments to numerous individual creditors.

However, there are downturns in the consolidation process. The programs typically last around 5 years, and while one may be paying a lower monthly interest rate, the length of the program still means that the client pays a considerable amount of interest for the duration of the program. Consolidation companies also require you to pay monthly maintenance fees of $ 30-50 per month, which add up over time. The biggest danger with these programs is the quality of the consolidation companies. There are a number of disreputable companies on the market that fail to deliver on the promises they make to clients, most importantly failing to distribute funds in a timely manner. Finally, participation in these programs can have negative effects on your credit score that cannot be repaired until the program ends.

Another popular form of debt management is the debt settlement option. This practice involves the actual negotiation of outstanding debts with credit companies. Often times, companies will agree to receive 40% to 50% of the outstanding balance as payment in full. This option is also affected by numerous unethical companies that charge high administration fees and commissions while producing little or no positive results. Like debt consolidation, debt settlement can also negatively affect your credit score, but since the programs typically last 2-3 years, one can start rebuilding credit sooner. Overall, debt settlement can be a very effective way to deal with debt as long as the consumer is cautious about which settlement company to work with.

There are many other methods included in the definition of debt management including filing for bankruptcy, refinancing a home loan, obtaining a consolidation loan, etc. The most important aspect to remember is to weigh the advantages and disadvantages of each option very well. Make sure you choose a program and company that are tailored to your needs and meet your expectations.