Handling debts can be a tricky affair. Consumers often find themselves in debt trap and realize that a debt-ridden life is not easy. So, what to do when you are in heavy debt? The key is not to lose the plot and put on your thinking cap.
A comprehensive consumer debt management plan can be constituted through a deep analysis of the situation and planning the steps to be taken thereafter. Consumer debt management should start at the self-help level and then transcend to professional help, if required.
Wise up to the situation: initiate personal debt management
A few self-initiated steps can be the cornerstone to successful consumer debt management programs:
1. Focus on preparing a realistic budget.
2. Get a hang of your income from all possible sources and list down the monthly expenditure on your necessities.
3. Cut down on all expenditures that can be put off to a future date.
4. Calculate the amount you end up with after setting aside the money required for monthly expenditures. Assign a major cut of this amount to clear away debts.
5. When paying debts, prioritize such debts that attract a high interest rates levied on them over other debts and try to clear way such debts quickly.
6. Always try to pay more than the minimum amount due per month.
7. In case of monthly payments being too high to put up with, contact your creditors and put your situation across to work out a renewed payment plan that reduces the monthly payments to manageable limits. So, negotiate a deal that is in tune with the creditors as well as gives you enough to meet up with your living expenses.
Seek professional help when required
When self-initiated measures can’t keep debts under check, it’s time to incorporate professional perspective into consumer debt management strategies.
There exist certain non-profit organizations that offer credit counseling services. These agencies formulate a realistic budget for their clients and offer valuable information on personal debt management. Once a budget is drawn up, you are required to stick to it and get your debt management plans rolling.
It is important, however, to do a thorough check on the terms offered by the counseling agencies with special reference to any hidden fees, charges or donations.
Debt management plans
The effectiveness of your personal debt management strategies can be enhanced through specific debt management plans. Your credit counseling agency, after running a thorough check on your case, may propose you a debt management plan.
The counseling agency shall contact your creditors and negotiate on certain parameters of your debts like interest rates, time periods, transaction fees, monthly payments etc. The agencies generally strike a deal with the creditors on lowering the rates or at times on reduction of transaction fees etc.
Such negotiations are done with each of your creditors and finally a payment plan is drawn upon by the counseling agency which is known as debt management plan.
Once you register with a debt management plan, you make one payment per month to the counseling agency. The counseling agency then directs payments to the creditors in the ratios as agreed upon in the plan. Before enrolling for such a plan, be well aware of the tenure of the plan and any rebates offered by your creditors. There may be a condition that may limit you from pursuing any new loan as long as you are under the tenure of your debt management plan.
Debt consolidation essentially refers to taking up a single loan and clearing away outstanding debts using this consolidated loan.
Since, you make a consolidated payment towards a single loan; it makes for easy budget-planning and debt-management. It also saves you from multiple interests you were to pay on your unconsolidated debts. However, such loans may require collateral to be put up thereby converting unsecured debts into secured debts.
In case you find it virtually impossible to pay the debts, consider debt settlement. Under such a scenario, the creditors settle for a lower amount to be repaid to them. The settled amount is either cleared by making one-time payment in full or by fixed monthly payments. The flip side of debt settlement is that they end up hurting your credit scores.
Depending on the circumstances, personal debt management should incorporate the best choices available and ensure that debts are no more a bane of your life.