what is debt management?
Debt management refers to the strategies applied to pay off multiple debts in order to avoid financial crisis. Personal loans, mortgages, and other debts can lead to financial difficulties especially in recession times. This article provides you with different solutions to overcome debt management problems.
Consolidation of Debts
Borrowers with multiple debts can consolidate them into a single amount. This makes it very convenient to pay since only a single amount is paid monthly. In addition, the borrowers get lower interest rates which reduce the total amount paid. However, this applies to unsecured debts such as personal loans and advances only, mortgages and other secured debts cannot be consolidated. There are different ways to go about it:
1. Credit transfers
Debtors with many credit balances can transfer them to a single credit card. This will considerably reduce the interest rate.
2. Taking a personal loan
Borrowers can take a personal loan although the interest rate in this case is high because the loan is unsecured.
3. Applying for home equity
This is a good option for debtors with high credit scores and a home to act as collateral security. The main advantage of this option is that the risks involved are lower and therefore financial institutions charge less interest rate.
The method of consolidation will depend on factors such as amount owed, repayment schedule and income.
Debt Negotiation
In cases where the debtor faces bankruptcy or legal action, negotiating with lenders to settle for a lesser payment is a good strategy. It is commonly used where it is evident that the debtor cannot repay the full amount. Borrowers may approach the lenders directly or involve third party professionals to negotiate on their behalf. However, this strategy leads to poor credit rating and may result to lawsuits in case of fraudulent conveyance or default in payment.
Contacting Tax Credit Advisers
Tax credits contact offer useful information and advice to individuals who have tax credits issues. They deal with matters such as:
i. Legal action due to tax credits fraud.
ii. Appeals and complaints.
iii. Advice on any specific issue about tax credits.
iv. Repayments claims.
v. Any specific inquiry about tax credits.
Debtors may authorize agents such as accountants to act on their behalf or they may contact the specialists directly.
Changing Spending Habits
The main reason why many people find themselves in debt management problems is poor spending habits. Here are some budgeting tips to help improve your spending habits.
i. List all your monthly expenses.
ii. Distinguish between the necessary and unnecessary expenses and reduce spending on the unnecessary items.
iii. List all the luxury products bought and calculate the amount spent. Use the money in reducing your debts.
iv. Always ensure your credit card has more than the minimum amount to avoid high interest charges.
v. Avoid credit purchases to cut down the debts.
Debt Management Firms Recommendation
There are firms that specialize in offering debt management solutions to debtor in financial crisis. They actually do debt consolidation, negotiation and settlement of other debt issues on behalf of their clients. They also offer information and advice to clients on how to solve debt issues and maintain a good credit record. This strategy is more appropriate for individuals who don’t have time or financial knowledge to manage their debts.