How To: Debt Management

Erasing your debt doesn't quite work like this.

You can never entirely erase your debt, but you can manage it and plan for the unexpected.

How are you managing your debt? Most of us have some form of debt, whether it’s a mortgage, a credit card, or a car payment. When things are going well, it’s easier to keep debt at reasonable and manageable levels, with interest rates that are within the limits of what you can keep up with. Even if you have a household budget and have available funds to pay off your debt, unexpected life changes can result in difficulty making ends meet.

One of the first steps to take when you encounter mounting debt is to review your budget. You can typically find ways to cut back on unnecessary expenses. This frees up money for you to help pay down your debts and keep monthly bills current. There are times, however, when cutting expenses and sticking to a budget simply isn’t enough. What should you do then?

Sometimes we need outside help. It’s hard to go to someone else when you’re having money troubles, but if you don’t gain control over your debts, your credit rating will suffer. So it’s important to take charge before it’s too late.

Some people turn to debt consolidation as an answer to their debt problems. Other solutions consumers try is transferring credit card debts from high-interest cards to ones with lower interest. They also put up home equity to get the funds they need to pay off their debt. These are only short-term solutions. Transferring balances between cards could negatively affect your ratio of debt to available credit which could lower your credit score. If you use home equity you’re putting your home at risk.

Another option many consumers turn to is credit counseling. Credit counseling agencies can help customers get set up with debt management plan (DMP). The first step in a DMP is negotiating with creditors to get lower interest rates and lower payments for the consumer. The debtor and agency will also work together to budget how much the debtor can afford to pay each month. After setting up a DMP the debtor will make one monthly payment to the credit counseling agency who in turn will pay the creditor.

In a debt management plan, you deposit money each month with a credit counseling organization. Moving forward the credit counseling organization will use your deposits to pay your debts according to the payment schedule you and your creditors have agreed upon. In some cases your creditors may lower your interest rates or waive certain fees once you are enrolled in a debt management plan. Using a plan can help you get out of debt faster, but it can also impact your credit. A note is added to your credit report stating that you are undergoing credit counseling. This means that you can’t get new credit. However, the notation is removed once you’ve paid off your debts.

If you use a credit counseling company, you should always check your bills to make sure that what you owe is being paid. Before you begin making payments to the credit counseling company make sure you contact your creditors to confirm that they have accepted the agreement set up by the debt management organization. Once your debt management plan has been accepted, it’s important to:

  • make your payments on time each month
  • read your monthly statements to make sure your creditors are receiving the correct payments; your statements may be found online if you have chosen to no longer receive paper statements from your lenders and
  • reach out to the organization that handles your debt management plan if you cannot make your payments or find any discrepancies within your monthly statements.

Should you miss any payments or fall behind on them any progress you made in paying down your debt could be forfeited including those lower interest rates and waived fees. Creditors could also begin to start reporting late payments again on your credit report even if you are enrolled in a debt management plan. Even if you enroll in a new debt management plan creditors may be unwilling or unable to set your account back to current until your fees are paid and account is properly brought back up to current. All of this could lead to more debt and negative remarks on your credit report.

If you decide to use credit counseling services you will need to do your research. Some agencies may charge high fees, miss payments, or just outright keep your money and not pay the creditors. Be sure any agency you are considering is a member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation for Credit Counseling (NFCC). These organizations assist in regulating and monitoring credit counseling agencies to ensure they are operating ethically and legally.

The Takeaway

Debt can take a toll on your finances and credit score not to mention the amount of stress it can bring into your life. It is best to seek help at the first sign that your debt is getting out of control. AmOne can help you manage your debt by finding ways for you to bring past due accounts current. AmOne can help you to identify ways for you to maintain payments on current accounts to put money toward those that are past due. Our knowledgeable associates are ready answer your questions on debt management, financial planning, debt consolidation, credit repair, and more. AmOne offers solutions; your call to us is free and we won’t try to sell you anything. Find out how to reach us and learn more about how AmOne can help you today.