When people talk about how to manage debts they often just mean how can they generally deal with it or get rid of it. The term debt management, however, has a very particular meaning, and is used to refer to a specific process for tackling consumer debt. This process also happens to be the most common and successful way to deal with debt, so is likely to be the right answer too for those people who are asking that general question about how best to manage debts.
Debt management is a process offered by specialist debt management companies. These operate widely in the US, UK and many other countries. The service they offer is one of providing a debt management plan (DMP), which consolidates all your unsecured debts into a single payment that you make to the company.
The way this works is that the company talk to all your creditors and come up with new arrangements for paying back your debts. The process involves a renegotiation of your repayment terms so that you end up paying less each month. This usually includes changes to the amount of interest you pay and often means getting agreement to write off or reduce any extra charges or penalties.
At the end of this process they have new arrangements for repaying each of your debts, and they take a single payment from you and share it out among all your creditors. The major advantages to you are a reduced monthly outgoing, the simplicity of a single payment and not having to deal with your creditors at all, who have to go through the debt management company.
You can only manage debts in this way if they are of the unsecured type. Most consumer debt fits into this category, which includes personal loans, credit and store cards, bank loans and overdrafts and other household bills. The things that cannot be included in a debt management plan are secured debts, which are usually bound to valuable assets. The most obvious example of a secured debt is your mortgage loan.
The other main requirements for being able to manage your debts through such a plan are that you have a steady job that gives you an income sufficient to make a reasonable monthly payment towards your debts. If you find yourself in the situation where you have very little left after covering your fixed monthly outgoings, you may not be eligible for a debt management plan, but all is not lost. For people in particularly desperate circumstances, the more appropriate option may be debt settlement negotiation.
Debt settlement is a completely different approach to debt management. Instead of finding ways to pay back the full debt, this process is all about getting agreement to write off as much of the debt as possible. When people are in very serious debt, they may be considering bankruptcy as one of the only other possible alternatives. If they declare bankruptcy the creditor is unlikely to get any of the debt that is owed, so they may agree to a much reduced payment in order to get something rather than nothing.
If you are resident in the UK and are concerned about how to manage debts that are particularly serious, you will not find debt settlement being offered as a service. This is because there is another option unique to the UK, which is an IVA (an Individual Voluntary Agreement). These are legally binding agreements that allow you to make a regular contribution towards your debts, and your outstanding debts are written off at the end of the agreement.
Having a good understanding of the options available helps you to choose how best to manage your debts. If you are going to seek help from a debt management or debt settlement company, you are advised to use recommended companies so that you only approach those known to be dependable and ethical. Any company you approach should be very well established and be able to show a good record of success in terms of having lifted many other people out of debt. A useful way to ensure you get good value is to apply to at least three companies so that you can assess them against each other.
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