Debt Management Plans – An Introduction to Counseling

Debt management is an arrangement between a lender and a borrower that resolved the terms of a deferred debt. This commonly refers to an individual finance procedure of people addressing high consumer debt across the country. This finance process is usually employed by debt management companies to help resolve financial difficulties. These companies will work with the borrowers to pay off high interest debt balances through professional negotiation with the lender. This is accomplished through the debt management company.

The debt management company is a third party which offers professional negotiation and settlement services on behalf of the borrower. These negotiations occur via correspondence or in person. Either way, the service provider will attempt to come to an amount that is less expensive than the combined amount the borrower originally owed. When these repayment amounts are reached, the debt management company will make one low monthly payment for the debts. If the amount still falls short of what is owed, these debt management services will work with the creditors to get more money.

As part of debt management plans, the debt management company verifies that payments have been made on time and that the debtor is making all of the payments in full. It then releases the credit score of the borrower from Fair Isaac. The credit score is a three-digit number obtained from the FICO credit report that reflects an overall level of financial responsibility. Lenders use this number to determine whether or not the borrower is capable of paying off loans. Having a poor credit score can negatively impact your ability to obtain credit.

A part of the debt management plan offers counseling to the borrower on how to keep from having another financial crisis. Counseling services also aid in improving the borrower’s current financial situation. In many cases, these services work with the creditors to lower interest rates and eliminate any late fees and penalties. The overall effect of these changes makes paying off the debts more affordable.

If you have a pending bill that you cannot pay, you will want to consult with a debt management plan professional before the bill goes to collection. If you agree to the terms of the debt management plan, the agency will advise you of your obligations. If you do not pay, collections will begin to hunt for the money owed. If you are able to make the payment, you will then be advised of the debt management plan and the balance due. You will be notified of the new repayment terms and instructed on how to make the payment. The counselor will then begin the process of contacting the creditors to arrange settlements.

When working with a debt management plan, it is important to be diligent in monitoring your credit card and any other accounts. By continuously paying off your credit cards, you will start to increase your credit score. As you start to build equity in your credit card accounts, you can then open up more credit card accounts and begin to rebuild your credit score. Once you have done this a number of times, you may find you can no longer qualify for an unsecured credit card because you have built up enough equity in your accounts.