Debt Management

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Debt management involves various steps that aim at the repayment of debt over the shortest period possible. Debtors can either do their best to make timely repayments or they will be ordered by the court to do so. Either way, individuals can deal with debt with the help of a third party or on their own. DIY debt management is possible, but it can be quite risky.

Debt Management Services

Because hundreds and thousands of individuals in the US incurred significant amounts of Debt during the recession, debt management service providers flooded the market, many of them working as independent financial counselors. On their part, debtors have to work with financial counselors: professionals know more about debt than the average American.

The service includes training in finance management which enables debtors to repay their financial obligations faster. Some people spend way more than they earn, this being one of the main reasons why individuals get into debt. The financial coach can help debtors look at their spending habits, analyzing the main cause of the problem.

The Debt Management Process

For a debtor to increase his chances of debt repayment, he has to follow a systematic procedure designed by a third party. The first step one needs to take is to compile a list of all creditors, including the monthly interest charges. Then, he has to think of all sources of income and his total expenses per month (e.g. utility bills, rent, groceries, etc). As soon as the second list is complete, the financial coach will examine it and propose a plan through which one's income will suffice to cover the monthly expenses, optimizing debt payments.

Even after the debtor starts implementing the plan, the financial advisor continues to work with the debtor until both see considerable progress. In the United States, all individuals can join some form of debt management plan. As long as the debtor cooperates with the financial advisor, there is a good chance the debt will be paid off.

DIY Debt Management

Some people find it better to manage debt on their own, avoiding payment for third party services. While this strategy can turn out successful, one needs to show persistence and good amount of willpower. The major problem of DIY debt management is that no one is there to track your progress. If you still prefer to manage on your own, relatives, friends and loved ones can be of help.

The process requires that you develop a plan, build a list of creditors, and sort them according to interest rates. Assess your total income and subtract expenses as to find out the amount of cash you have for debt repayment. If the sum is insignificant, you have to cut out on expenses or work harder. Make sure you pay larger amounts on credit with higher interest rates and cover at least the minimum on loans with lower interest rates. Stick to the budget and see your debts vanish.

A better debt management strategy is to develop a responsible financial attitude. Don't misuse balance transfers, inform creditors if you experience a financial hardship, check your credit reports on a regular basis, stop using retail store credit cards just to get discounts, and create an emergency fund. Unless you stick to these, you might have to resort to the services of financial counselor again.