Debt management is proven to lead consumers out of debt, but it is not the one-step formula that will solve everyone’s debt problems. As it is true for any kind of debt relief program, it is important to know if you are a good candidate for debt management first. There are various options to get out of debt and choosing the right one will not only solve your problems, it will also have the best possible effect on your future.
7 things that debt management can do for you
If you think that debt management is the right debt solution, there are 7 important truths that you need to consider first. Knowing these will help you understand the benefits of this debt relief option and confirm if you can maximize all of them.
Truth 1: Debt management can only restructure your debt
Some people think that entering a debt management program will solve their debts immediately. One important truth that you have to understand is this: debt management only restructures your debts – or more specifically, your payments. Apart from that, there is nothing much that is being done for your debts. The whole goal is to make your monthly payments more manageable to help you keep up and avoid late payments.
Truth 2: Debt management can make your monthly contributions lower
One of the appeals of this program is it allows you to make lower monthly payments without getting into trouble for it. For instance, if you pay an amount that is lower than your minimum requirement for credit card bills, you will be penalized for it. Through this program, you will be allowed to do that without any penalty charges for credit score implications.
Truth 3: Debt management can keep you from using your credit cards
People who have trouble staying away from more credit card debt will benefit from this debt solution because creditors freeze accounts that are enrolled in a debt management program. This will keep you from using it and thus help keep your dues minimal.
Truth 4: Debt management can give you financial management lessons
Another benefit of this program is the financial management lessons that are included in the package. When you consult a credit counselor, you will be given these educational materials that will help you develop the right habits to keep yourself from another debt pit.
Truth 5: Debt management can take care of your credit score
Probably one of the important benefits of debt management is the fact that it can help you take care of your credit score. Some people think if debt freedom as a means to an end and if that goal is really to borrow more money to help with investments, they will need a good credit for that.
Truth 6: Debt management cannot reduce your balance
Some people make the mistake of thinking that debt management can reduce your debts. It cannot do that. The lower monthly contribution that you will enjoy is possible because your current balance is stretched over a longer payment period.
Truth 7: Debt management cannot guarantee a lower interest rate
You also have to realize that although it will be one of the things that the credit counselor will negotiate on your behalf, a lower interest rate is not a guarantee. They will do their best but this will be entirely up to the creditor to decide if they will lower your rate or not. If they do, then your monthly payments will become even lower.
7 questions before using credit counseling
After reading about the 7 truths of debt management and you are positive that it appeals to your unique financial situation, there is another thing that you need to do. There are 7 more questions that need to be answered to determine if you really qualify for this debt relief program.
Question 1: Do I have the right type of debts?
Debt management can only work on certain type of debts – mostly unsecured ones. Your secured loans will be beyond the reach of this debt relief program so make sure you have the right debts, to begin with.
Question 2: Will it be enough?
Although effective, some people in debt need more help than what debt management can give. For instance, if you require debt reduction because your income is severely lower than before, then this is not the right program for you.
Question 3: How much can I afford to pay?
In case you have enough money to make debt reduction unnecessary, the next question that you need to ask is how much can you afford to pay each month? Remember that you can work on a lower amount than your minimum. However, you have to keep in mind that the bigger amount you pay, the faster you can get out of debt.
Question 4: Can I commit to this plan?
Since this involves a long payment plan with lower monthly contributions, some people get discouraged because they think that their progress is very slow. If you know that you will grow impatient, try not to use this plan or just focus on what you have accomplished and not how far you have left in your payment plan.
Question 5: What can I do to support the long payment plan?
A debt management plan will take up to 5 years to complete. You have to make sure that you can sustain your payments for a long time because if you miss even one payment, the whole plan will be terminated by the creditor.
Question 6: How will I choose a credit counselor?
A credit counselor is an important part of debt management so you need to hire a trustworthy company to help you with your debt problem. It helps to look for them through reputable organizations like the National Foundation for Credit Counseling or the NFCC. You can view their members through the NFCC.org website.
Question 7: Is there a better way to get out of debt?
Lastly, you may want to ask if there is a better way of getting out of debt. Always consider your other options to see if you will get better results through them.
When you have gone through all these questions and debt management still seems like a good idea, then go ahead and search for the credit counselor who can assist you. Just keep in mind that it all boils down to what you are willing to sacrifice just to get out of debt and stay out of it.