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3 Ways That Debt Management Can Make You Rich

man carrying a credit cardDebt management can refer to two different things. One is the debt relief program that can help you achieve debt freedom. The other involves the habits that will help you manage your credit so you can keep yourself from being ruined by the credit that you have taken on.

Debt had always been given a bad image. It is viewed to be a source of misery for a lot of families. Being in debt is the epitome of a financial crisis. When you have too much credit obligations, you will end up with a very restricted budget. Since you have to pay off your debts, you will be left with a smaller amount for your basic necessities. In most cases, you are compelled to sacrifice a lot about your life in order to meet all the required debt contributions on a monthly basis.

Based on the credit card data from the NerdWallet.com site, the average household credit card debt is at $15,270. This is when you divide the total debt of $856.9 billion with indebted household alone. But we all know that most of us have more than credit cards to take care of. We also have mortgage loans and student debts to take care of. Not to mention the medical bills that usually drive people to declare themselves as bankrupt.

Without a doubt, debt management is something that we need. Whether it is the debt relief program or the skills to manage your debts, it remains to be a useful solution to your money woes. But did you know that it can also make you rich? Although we have just explained how too much credit can rob from you, it can also help you build your wealth.

How does credit management help you get debt freedom

Of course, before debt can propel you towards wealth, you have to learn how to get rid of debt first. It is the whole debt experience that will make you rich – at least, if you do it correctly.

Step one is to take control of your debts first. While there are many options to get out of debt, we will be focusing on debt management. All of the available debt solutions are effective but you need to be qualified for it. Not only that, they all have different processes and effects in your finances that you may want to consider how you want your financial situation to end up when you finally achieve debt freedom.

Debt management is a great alternative to debt consolidation loans. Instead of relying on a loan to pay off your debts, you will restructure your debt payment plan so you can afford the monthly payments without sacrificing too much of your basic necessities.

Here are the important facts of this debt solution that will get you out of your credit problems.

  • It involves a credit counselor who has the expertise to analyze your debt and financial situation. They will scrutinize how much you owe and what you are capable of paying on a monthly basis.

  • For maximum amount of $50 per month, they can help you create a debt management plan and assist you in implementing it.

  • A debt management plan contains your proposed monthly payment that is usually lower than what you used to contribute. This is done, not through debt reduction, but by stretching your remaining balance over a much longer payment period. This results in a lower payment scheme.

  • The credit counselor will also try to negotiate for a lower interest rate on their balance. This can help lower the monthly payments even further. Of course, this will never be guaranteed by the counselor because the final word will come from the creditor. But still, you should know that they will make their best effort.

  • The monthly payment in this debt solution will allow you to simplify your plan. Although the credit accounts will not be combined, your payments will be. Part of the service of the credit counselor is to help distribute the monthly payment that you will make. You do not have to put too much effort in tracking your due dates and making sure that your money arrives in time in your credit account.

If you follow your debt management plan, you will find yourself out of debt soon enough. But with all of these processes, how can this debt solution make you wealthy?

3 things you gain from this debt solution that will make you wealthy

The thing that will help you become rich is the attitude that you will gain when you implement the effective debt management tips that will be imparted by the credit counselor.

Here are the three important learnings that you will have through this debt relief program and how each of them will help you increase your personal net worth.

Financial Literacy

The first learning is financial literacy. People get into a financial crisis because they did not know how to manage their money wisely. They got themselves into debt because they failed to understand what it will cost them. According to the survey published by the National Foundation for Credit Counseling through the NFCC.org, 40% of Americans think that their financial knowledge only merits them a C, D or F (2013). This proves that financial literacy is one of the ways that we can avoid putting ourselves through a debt crisis. You cannot find financial success when you lack the knowledge to manage your money. This is something that debt management can help you with.

All debt management programs will begin with credit counseling. The counselor will educate you and give you the materials that you need to help you understand how money should be spent. You will be taught how to budget, save and how to make smart decisions about your finances. Your knowledge is what will propel you to explore opportunities that will grow your money.

Discipline with Money

Another learning that you will get from debt management is discipline with money. It is very important that you learn how to control your finances because that is where the discipline will be honed. The most important manifestation of that discipline will be shown in how you spend your money. If you are reckless in your spending and you cannot follow a plan, then you will have no hope of controlling where your money should go to. You will be bound by compulsive buying habits that will eventually lead you to be in debt.

Through the watchful eye of the credit counselor and the rules in your debt management plan, you will be trained on how to implement your financial plan. This discipline will also be forced into you because when you fail to follow the plan, your creditors will terminate it and you will go back to paying the bigger amount that you used to make.

A plan, whether it is a business plan or budget plan can only be effective if you learn how to implement it. By having the discipline, you can get the fruit of the goal that you are trying to reach through your financial plans.

No Shortcut for the Debt Solution

The last learning is knowing that there is no shortcut. In debt management, there is no reduction of what you owe. You will end up paying for everything that you have borrowed – up to the last cent. You are only restructuring your payment plan to make it easier.

This is an important lesson that we all have to learn. When we have it easy, we sometimes tend to take things for granted – especially the lessons that we should have learned from our mistakes. If you fail to realize the mistake and take in the lesson, you can get into another financial crisis. We have mentioned before that being in debt will keep you from achieving financial wealth. So the patience that you will get from this debt solution will help you develop the perseverance that will make you rich.

5 Pros And 5 Cons Of Debt Management

blackboard with pros and cons columnsDebt management is one of the programs that can be associated with debt consolidation. The whole process involves the restructuring of the consumer’s debt payment plan so that it becomes easier to follow. Sometimes, people just need to reorganize their payments so they can pay off their debt more efficiently.

Although debt consolidation loan is another way of consolidating debt, most financial experts will suggest debt management. Although both are effective, debt management offers a more concrete debt solution compared to debt consolidation loan.

5 Benefits of using a credit counselor in debt relief

One of the strongest points of debt management is the fact that you have a credit counselor helping with your debt. In fact, this program begins with credit counseling. In most cases, you will go through the process of counseling before you can really decide if you will allow the counselor to manage your debts for you.

If you do decide to use debt management, you need to pay a service fee of no more than $50 a month. The credit counseling part is usually free but the debt management is not. You need to be careful about the credit counseling agency/debt management company that you will hire to help you out. There are various scammers who can trick you out of your money so be cautious of your selection. It helps to begin your search by looking at the members or reputable organizations like the National Foundation for Credit Counseling or the NFCC. You should also look at the Better Business Bureau or BBB website to find out if the company you are interested in has received any complaints from their past clients.

When you have found the right company, here are the benefits that you will get should you choose to use this debt relief option.

Debt relief expertise and negotiation skills

The whole lynchpin of debt management is call the DMP. Short for debt management plan, this is what you will use to restructure your debt payments. The credit counselor will use their expertise to help you create this plan. Not only that, they will take charge of sending this to your creditors and negotiate so that they will permit you to follow this plan. It usually contains a lower monthly contributions and your creditors will have to agree with it so you will not suffer any penalties. In some cases, the credit counselor will also negotiate for a lower interest rate.

Working relationship with creditors

All the negotiations will be tricky but credit counselors usually have a standing working relationship with your creditors already. That will make it easier for you to get the approval for the DMP that you both created. Not only that, the counselor will know how to construct it in such a way that the creditors can accept it without any of the payments breaking your budget.

Does not ruin credit score

Since there is no debt reduction in this program, you don’t have to worry about your debt solution damaging your credit score. As long as you stick to the plan, you will not only keep your score, you can steadily improve it as well.

Freezes credit account to keep from incurring debt

When you enroll your credit card debt in a debt management program, the creditor will freeze that account so that you will not add any more debt under that account. This can keep you from incurring more debt and it will only last until you have completed the debt management plan.

Expert advice about personal finance

Probably the best advantage of using debt management as your debt solution is the fact that the credit counselor can teach you the basic personal finance skills that will keep you from debt. These include budgeting, saving, smart spending and the other habits needed for you to live within your means.

5 reasons why debt management is not the right debt solution

While a debt management plan can help with your credit problems, the fact remains that it is not always for everybody. You need to possess the right qualifications and sometimes, the right temperament for it. Here are 5 reasons why this debt solution may not be the best option for you.

You have the wrong debt type.

Debt management can only work on unsecured loans, credit card debt, medical bills and other personal loans. It cannot help with secured loans or student loans. If you do not have the right debt type, you will not be accepted into the program.

You need debt reduction.

Even if you have the right debts, if you know that you need a debt reduction, you may be unable to afford debt management. This program can lower your monthly payment because your current balance is stretched over a longer payment period. But you will still end up paying for everything.

You do not have a stable income to support your payments.

Since there is no debt reduction, this program naturally requires you to have a steady and stable income. Otherwise, you will be unable to support the monthly contributions. And since this is over a longer period, the stability of your payments must be ensured.

The lower interest rate is not guaranteed.

While the lower monthly contribution is guaranteed, the lower interest is not. You have to keep this in mind so that you are not disappointed in case the creditor will not agree to lower it despite the efforts of your counselor.

You want a quick way to get out of debt.

This debt relief program takes around 5 years to complete. Since you are making small payments, you should expect that the progress will be quite slow. If you want a faster way to get out of debt, you need to make bigger monthly contributions or you may have to select another debt relief program.

If you want to learn more about how debt management can help you, watch this video about how you can use debt consolidation.

Common Questions About Credit Counseling

credit counseling signAmong all the other options of debt relief, credit counseling is something that can really benefit you. Debt is caused by a lot of mistakes that you made in the past and credit counseling will really help you get a clear picture of what you did wrong. More than just creating a payment plan that will get you out of debt, you also need to deal with what got you in debt in the first place.

This is where credit counseling can help. This program will provide you with the answers as that will not only get you out of debt, it will also help you understand what you have to do to keep yourself from another debt situation. That is a complete debt relief assistance and it pays to know what you can about it.

What is involved in credit counseling

So what exactly is involved in credit counseling? This is probably the first question that you will ask yourself.

This debt relief option involves a professional credit counseling agency. You will be assigned a credit counselor who will work with you on your debt. They will provide their expertise and experience to help you identify the extent of your debt problem and how you can possibly afford to pay it off.

But what can they do about your debt?

During the credit counseling session, there will be no direct action towards solving your debts. It will usually be about analysis, planning and education. Let us define each part.

Analysis

During the analysis part, you will have to provide the following to your credit counselor.

  • List of all your debts. You can take a look at your credit report for this or the credit counselor can get a copy for you.

  • Details of your monthly expenses. Make sure that you provide the complete list and the most near-accurate estimate that you can calculate.

  • Net income. Provide any regular income that you receive every month. Include your salary, benefits, investments and other sources of income that will help you pay off both your debts and your monthly expenses.

All of these information will help you credit counselor analyze the depth of your problem so they can advise you on how you can beat your debts.

Planning

After analyzing your financial position, the credit counselor can help map out your debt relief plan. This is just a general overview of how you can get out of debt. The credit counselor will point out what options suit your debt and finances best. You can discuss your financial goals with the counselor so they will understand how your after debt situation should be. For instance, if you want to get out of debt fast, they will open up debt settlement or bankruptcy as an option – at least if your finances really cannot accommodate any other solution. If you are concerned about your credit score, they will steer you away from these programs and suggest either debt management or debt consolidation loans. You can make your selection with the guidance of the counselor.

Education

The best part of credit counseling is the education part. You will benefit from the personal finance tips like budgeting, saving and smart spending. All of these will be provided by your credit counselor so you can stay out of debt after you have implemented the debt relief plan that you will use. This is just as important because you can be assured of maintaining the debt free life that you will work hard to achieve.

At this point, you may be asking, is credit counseling enough? Some people may have the resources to pay for their debts without any problems. They just needed to have a bit of direction through the counsel of a professional. In most cases, it is not. It is best partnered with another debt relief option – a program that will give you a more direct plan to pay down your debts.

Other questions asked about credit counseling

Apart from these information, here are other questions that may be bothering you about credit counseling. Let’s try to answer them here.

  • How is debt management involved? Debt management is the part of credit counseling that pays off your debt. It involves the creation and implementation of a debt management plan that contains your proposed low single monthly payment to your creditors. The counselor will help you negotiate this with your creditors so they will accept this new plan.

  • What debts can be helped by credit counseling? The counselor can give you advice about any type of debt but if you wish to use debt management, you can only use it for credit card debt, merchant cards and other unsecured personal loans.

  • Are there fees involved? Usually, the credit counseling part is free. These agencies are supported by credit card companies. They want to provide consumers with the resources to help them pay back their debts. There are for profit companies that you can avail too. When you go for debt management, there is usually a fee of no more than $50 a month to help you manage your debt payments. If you want to look for a free credit counseling agency, you may want to start with the Consumer Credit Counseling Service or CCCS.

  • How will it affect your credit score? In most cases, this will not affect your credit score. Sometime, creditors will mark your account with “CC” which basically means you are slow in paying your debts. But overall, creditors usually leave your report unmarked with hints about your credit counseling efforts.

  • Am I allowed to use my credit cards? Any credit card account that you will enroll cannot be used. This is a good thing, actually, as it will help keep your debt amount low.

  • Will the collection calls stop? Usually the calls will stop. In the first few payments, you may still receive them but as you are consistent in your contributions, it will stop.

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