DEBT MANAGEMENT: Safe-Keeping Your Finance and Credit Score

Debt management plan is a formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt. But what can you do by yourself?

debt management

Problem with debt management

Debt has a way of consuming its host if we let it. It’s important to keep our debt at reasonable and manageable levels, or we could end up incurring insane interest charges and found it terribly hard to make our payments. Even for those who are vast in debt management, unplanned life changes can bring about difficulty in making ends meet.

Then What?

When we find ourselves having problems with debt, the first course of action is to take a look at the budget. Finding ways to opt out of unnecessary expenses will be of great help in paying down debts and keep monthly bills current. But what happens when we can’t solve our debt problems with budgeting?

Sometimes we need outside help. It’s hard to go to someone else when you’re having money troubles, but if you don’t gain control over your debts, your credit rating will suffer. So it’s important to take charge before it’s too late. Your best call is a good debt management plan.

Consolidation

Some debtors, in rescue attempt, turn to debt consolidation as an answer to the debt problems. They transfer high-interest debts to a lower interest credit card. They also put up the equity in their homes to get the money to pay them off. Although, these options can provide lower payments, they can put you in a very bad situation.

Closing numerous accounts and putting all of your debt into one account can negatively affect your ratio of debt to available credit, lowering your credit score. And if you sell off your home equity to secure the money needed to pay off debt, you’re putting your home at an unnecessary great risk.

Credit Counseling

Credit counseling is another popular option for those with debt problems. Credit counseling agencies make use of budget as means of help. In some cases, they will set you up with a debt management plan. A debt management plan involves negotiation with creditors to obtain lower interest rates and lower payments. The debtor makes combined monthly payment to the credit counseling agency, and the agency forwards payments to each creditor.

A debt management plan can help you get out of debt faster. Its important to note that it can also impact your credit score with the the indication attached to your credit, which shows you are undergoing credit counselling. This means that you can’t get new credit. However, the notation is removed once you’ve paid off your debts.

The Risk

It’s also important to make sure you’re dealing with a reputable credit counseling agency. Some charge high fees or fail to make payments to creditors on time. Meanwhile, there have been reports of some that were found to be outright scams. They keep the money that debtors sent them to pay their bills without paying the creditors.

When considering credit counseling agencies, make sure they’re members of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation of Credit Counseling (NFCC). These are the organizations that regulate and monitor member agencies, making sure that they operate legally and ethically.

Final Note

In conclusion, an overabundance of debt can wreck havoc on finances and credit scores. It can also be the cause of undue stress and desperation. By seeking help at the first sign of trouble, we can often prevent our debts from spiraling out of control.

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