A simple definition of the term Debt Management is any action or method utilized in order to help an individual manage his or her debt. While this definition is rather broad, it includes services such as debt consolidation, debt settlement, bankruptcy, personal loans, as well as any other technique that might help consumers deal with outstanding debts.
When one speaks of Debt Management, one is most commonly speaking of the term Debt Consolidation. The idea behind debt consolidation is the following: A consumer enters into a program which allows him to lower his monthly payments and interest rates by combining all of his outstanding debts into one large debt. Then, once a month the individual makes a payment to the consolidation company who in turn is in charge of dispersing the appropriate funds to the proper companies. The theory behind this is that the client pays lower interest rates while at the same time simplifying the payment process as only he or she no longer has to make payments to numerous individual creditors.
Nevertheless, there are downfalls to the consolidation process. Typically the programs last about 5 years, and while one may be paying a lower monthly interest percentage, the length of the program still means that the client pays a hefty amount of interest throughout the duration of the program. Consolidation companies also require you to pay monthly maintenance fees of $30-50 monthly, which does add up over time. The greatest danger of these programs is the quality of consolidation companies. A number of disreputable companies exist in the market that do not fulfill the promises they make to clients, most importantly by not dispersing funds at a timely manner. Finally, participation in these programs may have negative effects on your credit score which can not be repaired until after the program is completed.
Another popular form of Debt Management is the option of Debt Settlement. This practice involves the actual negotiation of outstanding debts with the credit companies. Often times, companies will agree to receive 40-50% of the outstanding balance as payment in full. This option is equally troubled by numerous unethical companies that charge high administration and commission fees while producing little to no positive result. Just like debt consolidation, debt settlement may also negatively impact your credit score, but since the programs typically last 2-3 years, one can begin rebuilding his credit must sooner. On a whole, debt settlement can be a very effective manner of dealing with debt as long as the consumer is cautious about which negotiation company to work with.
There are numerous other methods included in the definition of Debt Management which include filing bankruptcy, refinancing on a home loan, taking out a consolidation loan, etc. The most important aspect to remember is to weight the advantages and disadvantages of each option very well. Make sure to choose a program and a company that fit your needs and meets your expectations.