What are the types of debt management programs available to consumers?

About debt management

Debt management is a process by which consumers schedule repayment of outstanding debt that has accumulated and proven to be too much to pay back in a timely manner.

Consumers in this situation have a handful of options in order to get handle on their debt and properly manage the repayment of this debt:

• Self-help by setting a strict, but realistic, budget
• Credit counseling
• Debt consolidation
• Debt negotiation
• Bankruptcy

One step to take when debt gets out of hand is for a consumer to contact creditors directly. Most creditors will help a consumer set up a repayment plan. This can be a much better option than waiting for the creditor to send the bill collector to your doorstep. For debt that is secured, tied to an asset like a home or a car, creditors may take that asset back, such as foreclose on a home or repossess a car.

Credit counseling is another step consumers can take, as the counselors work with consumers to resolve the credit issues. A credit counselor may put a consumer on a credit counseling plan. In this case, the consumer deposits funds each month with the credit counseling organization, which, in turn, pays down the consumer’s debts on an agreed-upon schedule. A debt management plan could take at least two years to complete.

Although there are many reputable and affordable credit counseling organizations, with certified counselors, consumers should be aware that not everyone who advertises credit counseling is reputable. These counselors are under no obligation to operate free of charge or to charge affordable fees. Therefore, choosing to work with this type of credit counseling agency can simply add to a consumer’s debt.

Home equity debt consolidation is the process of securing a second mortgage or equity line of credit, secured with a consumer’s home, to pay off other debts – secured or unsecured.

Consolidating debt this way has pluses and minuses. One plus is the ability for consumers to deduct interest expense from their tax obligations. One minus is that your debt is now mored tied up in your home.