Debt Management

Debt management is strictly defined as the designation of a third party who helps a debtor repay their financial obligations. There are many companies that specialize in credit counseling and most also offer debt management assistance for people whose credit is poor and whose debt has gone out of control. A more simple definition of debt management is the practice of spending less than you make. For most purposes, debt management is defined as the structuring of a repayment plan either by personal choice or court order.

Most debt management plans consist of steps on which the third party and the debtor work together. The first part of any debt management plan involves the compilation of a list of creditors and the amount they are owed- some creditors (such as auto and mortgage lenders) are not able to enter into debt management plans. Once the list of creditors is assembled and the total amount of debt is calculated, it is compared against the total income and expenses (such as car payment, rent or mortgage, and cost of living).

The agency helping to create the debt management plan will help you figure out how much you can afford to pay on your debt each month. In many cases, that party will be able to settle your debt for less than you owe, and will be able to get interest rates reduced. However, you should keep in mind that your participation in a debt management program will adversely affect your credit score, and your amount of available credit will be limited. If you have less than ten thousand dollars in debt, you will likely not be eligible for most debt management programs.

The bankruptcy laws of the United States changed in October of 2005 and a lot of people are finding that participation in debt management plans is their only viable option. If you are seeking the help of a debt management service, ensure that they are registered with the BBB and that their fees aren't unreasonable. You should expect to pay some sort of fee for debt help, but that fee should not be based on a recurring charge or a portion of your debt amount. Debt management services are meant to help you get back on solid financial ground, not increase your debt.