For And Against Debt Management

By: Nicholas Hunt
Millions of people are finding that their debts are becoming a serious problem, as the effects of years of easily available credit start to bite. There are also many companies who promise to solve all your debt worries, slashing your repayments and clearing your debt completely within a few years. Is this too good to be true?

First, we need to find out exactly what debt management is.

When you sign up with a debt management company, they will take over the servicing of your debts in return for a fee. Instead of having to keep up with all your repayments to many creditors, you can now make a single payment to the management company who will divide it between the companies you owe money to. This in itself can be a great weight off your mind, as the stress of keeping track of your repayments is removed, but a debt management program can offer more than this.

Your manager will contact your creditors and explain that your debts are unsupportable, and try to agree a new repayment schedule that you can better afford. They will also attempt to get the interest payments on your debt frozen, so that more of your money goes towards clearing your debt rather than just keeping on top of it.

In some cases, they may also be able to get previous interest charges cancelled, reducing the total amount you owe, but this will depend on how flexible your creditor is prepared to be. If the alternative to agreeing a more affordable repayment is bankruptcy, when the creditor will get no repayments at all, then most will be happy to negotiate.

So far, so good. Your debts will be reduced, your worries will be eased, and you can look forward to a debt free future. Of course, it isn't that simple, and you need to bear in mind the drawbacks of debt management before embarking on it.

Firstly, entering a program will effectively involve tearing up the credit agreements you've signed with your creditors. Even though you'll be agreeing new terms and sticking to them, this will leave a serious black mark on your credt rating. However, this might not greatly concern you - people with serious debt problems tend to have impaired credit scores already, as payments have usually been missed or debts defaulted on.

More seriously, although some charities will offer debt management at no cost, private companies will charge a fee which can in some cases be a considerable one. Beware of companies promising to solve your problems instantly - they may be trying to take advantage of people when they're vulnerable. Shop around to see what fees you'll be charged before signing up.

To sum up, debt management can offer a solution to heavy debt problems, cutting your repayments and relieving stress, but it has implications for your future credit worthiness, and care needs to be taken in choosing a company or organisation to sign up with.

Nicholas Hunt is a contributing writer for 1Stop Finance, where you can read more about debt management and other ways of coping with debt.

Debt Consolidation Is Not Always The Right Solution

By: Jessica Peterson
There are many reasons why debt consolidation may not be the right solution for you. Debt consolidation cannot solve debt problems for all kind of debts. Debt consolidation may be too expensive if debt has already affected your credit and you don’t have collateral. And certain debt consolidation programs may be nothing but scams. Thus, you need to be well aware of what you are getting into.

Debt Not To Be Consolidated

For starters, you should understand than not all debt is suitable to be consolidated. The reasons for this are varied. Most subsidized loans already carry very low interest rates and thus, it makes no sense to consolidate those loans by using a more expensive loan. This is always true, unless of course what you need is to reduce the monthly payments by extending the loan repayment period.

There are many subsidized loans. Government loans for students, private loans for students, government loans for first time home buyers, government loans for starting businesses, government loans for research disciplines, etc. are just a few examples of subsidized loans that are not suitable for consolidation.

There are loans that being secured are not suitable for consolidation. Though refinancing can be a form of consolidation if other loans and debt are repaid with the exceeding cash obtained from a cash-out refinance loan, truth is that very seldom a home loan or home equity loan is included in a debt consolidation program.

Debt Suitable For Consolidation

Generally speaking only debt which is unsecured in nature and secured debt taken when your credit score was low (bad credit debt) is suitable for debt consolidation. The latter will be suitable only if your credit score has improved or if you can provide better collateral and thus obtain a more competitive interest rate.

Examples of unsecured debt are: unsecured personal loans and personal lines of credit, credit card debt, store card debt, pay day loans, cash advance loans, certain student debt, bank account overdraw agreements, bank pre-approved personal loans. All of these can be consolidated into a single loan or the terms negotiated by a debt consolidation agent.

Debt consolidation in the form of a loan carries the advantage of obtaining a single and lower monthly payment that will simplify your budget while you work on your expenses. Debt consolidation in the form of negotiation is also an excellent tool that can provide a solution by reducing rates, eliminating debt generated by interests or extending the repayment programs so as to make debt more affordable.

And finally, both methods can be combined offering an excellent way of eliminating debt, managing finances and improving credit score in the same debt consolidation program.

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Jessica Peterson writes finance articles for Yourloanservices.com where she shares her knowledge about how to get money for a starting-up business, consolidating any kind of debt, repairing a home even with a bad credit history and more.