Understanding Debt Management

 

Debt management is a crucial financial skill, especially as you get older. It can help you achieve your goals, limit your financial options and lead to problems like bankruptcy.

While some debt isn't bad, such as mortgages or car loans, too much or the wrong kind of debt can make it difficult to pursue other goals. 

Paying Your Bills

A debt management plan consolidates your unsecured debts into one monthly payment, often with lower interest rates. This can help you pay off your debt faster and save money in the long run.

Credit counseling agencies can negotiate with creditors on behalf of their clients. This can include reducing or waiving late fees and lowering interest rates. It can also result in shrinking balances that significantly impact your credit score.

Set aside time on your monthly calendar to review and pay your bills. This can prevent you from missing payments and damaging your credit scores. It can also help you stay on top of new fees and changes in terms. This is especially important when dealing with recurring expenses like gym memberships, utility bills, and online services.

Consolidating Your Debts

One way to pay off debt is by consolidating multiple debt accounts into a single loan or credit card with a fixed monthly payment. Depending on the debt consolidation you pick, this could result in a cheaper interest rate and an acceleration of your debt-reduction timetable.

A few ways to consolidate debt include obtaining a personal loan or home equity line of credit (HELOC) from Symple Lending or working with a certified credit counselor. Paying off debt and maintaining healthy finances will improve your credit score regardless of your method. Your on-time payments contribute to 35 percent of your credit score. This is why keeping track of your credit scores as you manage your debt is essential.

Prioritizing Your Debts

Whether you have credit card debt or a student loan, developing a strategic plan to pay off your balances is essential. It may require sacrificing some comforts in the short term, but it will likely improve your credit score in the long term.

There are several ways to prioritize your debts, including ordering them by interest rate or using the debt snowball method. The latter involves listing your debts from smallest to most significant (regardless of their interest rates) and paying the minimum payment on everything except the smallest debt. When that account is paid off, you move on to the next smallest and continue until all your debt is eliminated.

Your financial condition, ambitions, and goals will determine your best method. However, the most crucial factor is to stick with it.

Debt Settlement

A debt settlement is a process in which you negotiate with creditors to close an account for less than the total amount you owe. Creditors typically report this to the IRS, which may deem the difference taxable income.

You can settle debts on your own or with debt management professionals. Debt adjusting or settlement companies charge a fee to negotiate a lower debt balance with your creditors on your behalf.

While this option can help reduce your debt, it negatively impacts your credit score and should be used cautiously. 

Bankruptcy

You can file for bankruptcy if budgeting, debt consolidation, and negotiating with creditors cannot get your credit back on track. Be aware that bankruptcy will stay on your credit report for seven to 10 years and may make it harder to get a job, an apartment, or a credit card.

If you decide to pursue bankruptcy, a reputable consumer credit counseling agency can help you prepare by conducting pre-filing credit counseling and pre-discharge debtor education sessions.

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