Information about Debt and Debt Management Options

Information about Debt and Debt Management Options

Debt is a common problem in America, overtaking much of our paychecks and ruining many people's lives. If debt payments exceed 20% of your monthly income your debt is a serious problem which requires action.Debt can come from excessive credit card usage, expensive medical bills, or emergency purchases and spending. There are a few basic programs and options for getting out of debt including credit counseling, do-it-yourself approach, debt management programs, debt consolidation, and bankruptcy.

Credit counseling is an educational program which helps a person make informed decisions, make plans for the future and design a plan based on their own personal situation. Make sure you find a certified credit counselor, they will be able to provide you with professional help, identify the root of your financial distress and much more. The counselor bust first understand your specific situation before they can give you a solution to your problem. After they understand you situation they will help you with a spending plan and budget.

The do-it-yourself approach to debt management is where a person simply uses self-help educational options to learn about using credit properly, budgeting and money management. With the do-it-yourself approach you will have to contact the creditors yourself, pay debts with the highest interest first, cut up your credit cards and maybe even get a second job. This can be affective but requires strong will and self-discipline.

A debt management program or DMP may be suggested by a credit counselor. The counselor will work directly with the creditors on the debtors behalf and provide additional education to help the debtor stick with the plan and pay down the debt. Instead of sending out multiple payments each month one single payment will be sent out and they DMP will pay the appropriate creditor a certain amount, on time each month. These programs help you save money by working with creditors to lower interest rates but not principal owed.

Debt consolidation is where you consolidate your existing debts and mortgage into one larger mortgage payment, sometimes with a lower interest rate. Home collateral is often used to take out this loan and pay off all the creditors. Then you must stay up to date on your payments, otherwise you risk losing your home. This will not fix and underlying spending problems, it is important you get help and education on debt management to prevent yourself from getting into more debt.

Bankruptcy is a last resort. It is a court action which stops lawsuits and other attempts for creditors to collect from you. It stays on your credit for 10 years which makes it difficult for the person to obtain loans for cars, homes, credit cards and more. Bankruptcy should not be considered a quick or free way to get out of debt. Chapter 7 Bankruptcy eliminates virtually all consumer debts but not secured debt like a home. You also are still require to repay child support, alimony, student loans, income taxes and legal fines. Chapter 13 bankruptcy is used in special situations and typically allows the filer to keep their home. A court trustee oversees stick repayment of the debts over a period of three to five years. Bankruptcy should not be taken lightly and you should explore all other options prior to filing for bankruptcy.

There are many of the options available to help you manage your debt, you will have to pick which solution is right for you. Get the answers to all your debt and finance questions.

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