Debt management is one of the hardest things the average person has to do. The average person I have met in my adult life had a debt of one form or another. Managing debt on your own can be difficult, but it is usually the best option. Using a debt management company to help decrease your debt is an option many people choose, but that is not the best solution in every situation. Some “debt management programs” can end up hurting your credit and may make the whole situation worse.
Debt management is mostly learning how to live on a budget and using all other funds to decrease the amount you owe to creditors. There are two main types of debt: secured debt and unsecured debt. Secured debt is backed by a physical object i.e., home loan or car loan. If you do not pay these debts off, the lending institution will take that object away from you. Unsecured debt is not backed by any object i.e., credit cards, personal loans, or phone plans. These are usually lower-level loans with much higher interest rates. While the lender can’t take anything away from you, they can report it to your credit and destroy your credit score.
While the lender may still send your debt to collections, it is always a good idea to pay these down. With FICO and Vantage evolving, newer models will weigh much less heavily on collections with zero balance than it would for collections that still carry a balance. Although this isn’t the current status quo, debt management is a long term plan. It is possible by the time you go to apply for a loan the lending institution may be using these newer models.
This is a tricky question because it depends a lot on your situation and what debt management company you use. Some of these companies can be great and very helpful in setting up plans and helping you pay down your debt. Some may be bad and end up putting you in the same credit situation you were in before. This article from Dave Ramsey is very helpful on this subject. If you do decide to use a debt management company, be careful with who you choose and make sure to do your research. Anything under 3 stars tends to make me reconsider. Make sure you read those reviews and make sure they are written by trusted people. Check the names against the company directory, you might be surprised what you find.
If you decide not to use a debt management company, it is time to buckle down. Focus on your finances and determine what a need is and what a want is. Try to decrease your overall cost of living and use all your excess money to pay down your debts. Use a budgeting spreadsheet to determine how much money you will have after spending on your needs and use as much as you can to pay down these debts. Make sure you always have a safety net or reserve. You never know when an unexpected expense will happen, that’s why it’s called unexpected.
“Make sure you read those reviews and make sure they are written by trusted people.”
Student loans can be a huge source of debt; fortunately, there are many ways to manage student loans. A lot of student loans have repayment options based on your income. A majority of student loans also have delayed repayment. This means you won’t have to pay your debt until a set amount of time after you graduate. Not having to pay your debt for six months is nice because it allows you to find a job and start saving before you have to start paying. I recommend setting aside the amount of your monthly payment as soon as you get your job because it allows you to have a little bit of cushion if you run into any difficulties. If you have questions about your student loans, call your lender! They want your money as much as you do so they are likely to help you out as much as possible. Just remember, the sooner you pay them off, the better.
Interest is costly, and you pay interest every month that you have to pay your loan. Websites like LendKey.com help reduce student loans even more. LendKey is a student loan refinancing platform. They work with banks and credit unions to provide low-cost, online refinancing. My favorite part is LendKey helps consolidate multiple loans into one loan so it is easier to stay on top of your payments. Consolidating can also help you save money by helping you qualify for lower interest rates!
Debt consolidation is getting a loan to pay off your debts, then paying down that loan overtime. This can be a good option if you have high-interest loans or loans from many lenders. When considering debt consolidation, you should consider interest rates and loan pay off period. If you can get a loan for lower interest than your current loans, this is a great option! Paying less interest to your lenders is always better for your pocket. Just remember, this can come back to hurt you if you don’t pay it off. It is just another form of unsecured debt.
It all boils down to self-management. If you are unable to manage your debt and create a monthly plan, you will drown in debt. A majority of Americans have debt, do not think you are alone. Managing your debt will make or break your future, no matter how much money you make. Whether you choose debt consolidation or negotiating for yourself, there are many ways to save on your debt. New loans can help decrease interest rates and so can negotiating with your lender.