Options For Debt Management

Managing debt can be overwhelming when you try to do it by yourself.  The great news is that you don’t need to manage it alone, unless you want to.  There are many companies that are in business specifically to aid you in eliminating your debt.  Prior to deciding how to manage your debt, it is wise to consider the different available options.  

Debt Consolidation

With debt consolidation, you are basically combining your different debt accounts into one that contains your total debt.  It helps make debt easier to deal with since you have only one creditor instead of multiple creditors.  Your one creditor issues a loan for you to pay your accounts in full with your other creditors.  Once you have done that, then you just make payments on the single loan.  The bottom line is that debt consolidation is just a form of reshuffling debt to make it more manageable.            

Debt Counseling

Debt counseling is synonymous to credit counseling.  Whether the company states that they specialize in debt counseling or credit counseling, they really are offering the same form of service.  That service is to work with other creditors on your behalf to lower interest rates and payments on your outstanding accounts.  Debt counseling may seem like debt consolidation since you only make one payment a month on your debt.  The main difference is the debt counseling company does not issue you a loan.  Your one payment is then divided up and sent to each of your creditors.  

Debt Settlement

A debt settlement company assists in debt management by negotiating lower payments on your accounts.  Similar to the above two options, you also only make one payment.  Every payment that you make is deposited into your savings account with the company.  Once several months pass, the debt settlement company presents a settlement to each of your creditors.  Once a settlement is agreed upon, a payment is made to your creditors from your savings account.         

Bankruptcy

Bankruptcy makes it possible to completely eliminate some forms of debt.  Debts such as medical, utilities, rent, auto, or credit cards may be eliminated with bankruptcy.  This is an option for anyone that has an extremely high ratio of debt when compared to annual income.  There are only two types of bankruptcy.  One type allows eligible debts to be canceled, or completely eliminated.  The other type allows your debt to be eliminated through payments.  Typically, you must pay for any debts are not completely eliminated.  

Once you know about the different options available for debt management, you may then start deciding which one is right for you.  It is important to remember that you need to understand not only the advantages of each option, but also its disadvantages, before you make a final decision.