Debt Management Program
At some point in our lives, we can find ourselves under quite a lot of debt - mounting credit cards, rising interest rates, home mortgages, car payments - and when we're trying to save for retirement, or put away money for a college fund, the pressure from all this debt can be overwhelming. Today, Americans are nearly $2 trillion in debt - that comes out to about $12,000 per household.
Sometimes getting out of debt is as simple as taking a look at your income and your expenditures and planning a sensible budget; and in this case, home debt management software can be a helpful tool in assisting you to plan that budget and stick to it. However, often the amount of debt we face is too steep to realistically be tackled alone. And that's where a Debt Management Plan can come in.
Debt Management Plan: An Overview
According to the National Foundation for Credit Counseling (NFCC), a Debt Management Plan is a systematic way to pay down outstanding debts. It involves enrolling in a Credit Counseling program, into which you make monthly deposits. Your credit counselor then takes these deposits and uses them to pay off your creditors. By participating in a debt management plan, you can also benefit from reduced finance charges, lowered interest rates and waived penalties - this is because many credit card companies take your enrollment in the program as a sign that they will be able to recoup the monies owed to them in a shorter period of time, and are more willing to negotiate amounts and terms of what's owed.
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Credit cards aren't the only kind of debt you can pay down through a debt management program; almost any type of unsecured debt will qualify - these include personal loans, bank overdrafts and store cards, medical bills, memberships, gas cards, cell phone bills, utilities, etc. Almost any unsecured debt that doesn't fit into the category of collateralized debt like a home or a car. The bottom line: a debt management plan can help you: reduce interest rates, get rid of fees and penalties, and allow you to make a lower payments each month -- while still helping you get out of debt on an accelerated schedule.
What about debt consolidation? Is that the same thing?
Debt consolidation is a term that goes hand in hand with debt management. As a way to describe a debt relief plan, they are the same - each depicts a situation in which your high-interest debts are consolidated under one easier-to-manage monthly payment.
Debt consolidation can also refer to two different types of loans: secured loans and unsecured loans. You don't enroll in a credit-counseling program to receive these loans - they are marketed to you directly by a financial institution.
Unsecured loans are the lower-risk loans of the two. Usually they're available for $8,000 or less, and can be obtained without having to put up any type of collateral (such as your house). Bank loans usually come with an interest rate that is much lower than most credit cards, so they make a great way to pay off a mild-to-moderate amount of debt. Be aware, however: it's important to make steady payments on the loan - otherwise, your credit rating can be further damaged and you could fall into even deeper debt than you were before.
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Secured loans are usually for debts exceeding $8,000 - and since they cover a greater amount of debt, they come with their own price tag. Secured debts require that you put up collateral - again, such as your house - to obtain approval. Therefore, if you miss payments on the loan, you risk the chance of losing your home. Because of this, you need to be absolutely certain that you can abide by the loan's payment terms before deciding that this type of loan is right for you.
Debt Management Plans: Get on the right path!
Deciding that a debt management plan is the right course of action is a major decision - one that should be done by consulting a credit counselor. Of course, finding the RIGHT credit counselor is just as important. Make you sure you do your homework and choose a credit counseling agency that is experienced, honest and rated well by the Better Business Bureau or other local consumer protection agencies. Don't be pressured into making any decisions before you feel comfortable with all the information - but when you ARE ready, take heart. A debt management plan may be a great way for you to get on a plan that provides you a predicable debt free day so you can be on the proven path to financial freedom and a debt-free life.
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