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Debt
Management
If you are in the
terrifying grip of a credit crisis, you know how difficult it is to get
out. A professional debt management program can help you get out of
debt. It can also teach you basic money skills like budgeting which will
prevent you ever going back there.
Types of Debt
There are two types of
debt. Working with a debt management program can help you identify the
enemy and take steps to remedy the problem.
Secured debt means the
creditor (or person) you owe money to has the legal right to repossess
the goods or property that the loan is secured against. Examples of
secured debts are mortgages, secured loans on property or hire purchase
(HP) normally found on vehicles.
Unsecured debts are not
secured to anything and therefore the creditor does not have the
automatic right to repossess any goods even if you are struggling to
repay the money that you owe. Examples of unsecured debts are credit
cards, loans, store cards, catalogues, overdrafts, and income tax bills.
A debt management program
will show your how to consolidate into one payment:
- Credit card debt
- Unsecured personal
loans
- Medical bills and
other consumer credit
These programs can also
help you through a debt reduction phase.
The
Psychology of Credit
Credit card debt is the
most cunning adversary to securing your financial future. Credit card
companies use enticing promotions to lure consumers by increasing their
credit limits and offering tempting pre-approvals. Would you like a new
car? A boat? Home improvements? All of these strategies attempt to
install the habit of spending now and paying later.
Many people don't realize how destructive this habit is, until their
credit card payments overwhelm their monthly budget. Credit card debt,
as a percentage of income, has been steadily on the rise for the past
two decades. It may be difficult to break the habit of using credit
cards but the reward is worth the effort. Living on a cash basis can
bring tremendous peace of mind. It actually aids decision making. Can
you afford it? Only if you've got the cash.
If you find yourself in debt and are having difficulty managing it,
notify your lenders. It's better to let them know in advance of problems
so a debt reduction program can be worked out.
Debt Repayment Plans
A debt management program
will come up with a repayment plan. But it does not erase your credit
history. Under the Fair Credit Reporting Act (FCRA), accurate
information about your accounts can stay on your credit report for up to
7 years. A bankruptcy can stay on your report for 10 years. In addition,
your creditors will continue to report information about accounts that
are handled through a debt repayment plan. You can keep watch over the
state of your credit rehabilitation with free online credit reports.
You're entitled to one a year from each major credit bureau.
Creditors may report that an account is in financial counseling, that
payments have been missed, or that there are write-offs or other
concessions. But a demonstrated pattern of timely payments should help
you get out of bad debt in the future. It takes some discipline to get
through a program, but the outcome is worth it. Feeling debt free gives
you a feeling of independence. Knowing that you have paid off all of
your bills is an amazing feeling. |
