Read these 10 Debt Management Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Personal Loans tips and hundreds of other topics.
Debt consolidation is when you take out a loan, usually tapping into the equity in your home, to pay off higher interest debt, usually credit card debt. Mortgage lenders make a lot of money on these types of loans, which is why they push them so hard. There are application fees and closing fees for debt consolidation loans. Plus, some lenders charge fees so you can get a lower interest rate. All that said, is a debt consolidation loan right for you? If you own your home and have significant equity in it, it could be. The benefits of tapping your home equity are that you can pay off your higher interest debt at considerably lower rates. Plus, some or all of the interest you pay on the loan could be tax-deductible. The drawback is that most home equity lines of credit or refinances extend the repayment period, so you may end up paying more for the debt in the long run. Plus, if you draw down the equity in your home and a true-blue emergency were to strike--say you lose your job or have a catastrophic medical emergency—you would not be able to fall back on your equity to bail you out. Finally, if you suspect you'll just turn around and run up the credit card balances again, don't touch your home equity. If you can't pay your bills, you could end up on the street.
If you do not own your own home or do not want to risk the equity in your home for debt consolidation purposes, there are other alternatives to managing debt. You could contact a reputable credit counseling organization to get help, setting up a budget, developing a strategy and schedule to pay off your debt, and, if necessary, negotiating a debt management plan with your creditors. You could also set up your own push payment plan using the same software many credit counselors use. It's called Debt Analyzer. You can download a free—but banner-ad-riddled—version of Debt Analyzer or an ad-free version for about $30. As far as debt management tips are concerned, one school of thought on credit debt management is to pay off the smallest bills first, then roll the amount you were paying on that debt into paying off the next largest debt and so on. Debt Analyzer works on the push payment theory in which you pay off the debts with the highest interest rates first, shaving years off your overall repayment period and saving thousands of dollars in interest. It is super easy to use and a really good tool for setting a goal for and reaching debt freedom!
A debt repayment push plan is a smart debt management strategy in which you make a list of all your credit card debt according to the interest rate being charged. While continuing to pay your monthly payments for all the credit cards, you make a "push" to pay off the credit card with the highest interest rate first by putting any and all extra money you can scrape together toward paying off that card. Once that card is paid off, you take the money you were using to pay it off and start applying it the card with the next highest rate and so on, until you have all your credit card debt paid off. By paying off those cards with the highest rates first, you save a ton on interest and shave years off your repayments. Debt Analyzer is an ultra-simple software program endorsed by many reputable credit counselors. You plug in a little information about your debt and Debt Analyzer spits out summary of how quickly you can pay off your debt and how much interest you can save using a debt repayment push plan. Download Debt Analyzer for free (with sponsor banner ads) or for $30 for the ad-free version.
Don't make the mistake of assuming all is well just because you've taken steps to set up a debt management solution. You must review each and every one of your bill statements every month. If your bills are not being paid the correct amount, or are not being paid at all, that is a HUGE red flag that there is some monkey business going on at the agency you are working with. You need to spring into action immediately! Contact both the Federal Trade Commission and your state attorney general's consumer protection office for help. If your payments to the agency administering your debt management plan are being automatically withdrawn from your bank account, contact your bank to terminate those withdrawals. Resume paying your bills yourself, and make the payments on time. Contact all your creditors immediately to notify them of what has happened and try to negotiate a payment plan with them yourself. Finally, visit the National Foundation for Credit Counseling's Web site, and use its search tool to find a truly reputable credit counselor to help you get back on track.
If you do not own your own home or do not want to risk the equity in your home for debt consolidation purposes, there are other alternatives to managing debt. You could contact a reputable credit counseling organization to get help setting up a budget, developing a strategy and schedule to pay off your debt, and, if necessary, negotiating a debt management plan with your creditors. You could also set up your own push payment plan using the same software many credit counselors use. It's called Debt Analyzer. You can download a free—but banner ad riddled—version or an ad-free version for about $30. One school of thought on credit debt management is to pay off the smallest bills first, then roll the amount you were paying on that debt into paying off the next largest debt and so on. Debt Analyzer works on the push payment theory in which you pay off the debts with the highest interest rates first, shaving years off your overall repayment period and saving thousands of dollars in interest. It is super easy to use and a really good tool for setting a goal for and reaching debt freedom!
Debt Management Tips: If you have multiple credit cards with different interest rates, one way to manage your debt and pay it off more quickly is to transfer the balances to the credit card with the lowest rate. However, you need to be sure to do this methodically, or you could find yourself paying late fees and getting dinged on your credit report. Organize your statements so you have the account numbers, balances, and contact information for all your accounts. Keep track of the amount you are transferring from each card and the date the transfer was initiated. It takes as long as two to three weeks for transfers to be completed, so if you have a payment due in that period, make the payment on time to avoid late fees. Once you have consolidated your debt onto one card, cut up--but do not cancel—your other credit cards so you are not tempted to use them again. Why not cancel them? Part of your credit score is based on what percent of your available credit has been used. If you cancel your other cards and the card you rolled your balances to is at or near its limit, that will look bad on your credit report. However, if you think you may be tempted to use those cards, cut up or not, you probably should cancel them.
A debt management plan is a debt repayment plan that a certified credit counseling agency helps negotiate with your creditors. Setting up a debt management plan requires you to share information about your financial situation and your bills. A qualified credit counselor will very often negotiate with your creditors to get lower interest rates. Some are even able to get your creditors to suspend interest and other fees as long as you are making timely payments through the debt management plan. In exchange, you deposit a fixed amount of money each month with the credit counseling agency, which, in turn, uses the money to pay your creditors. Your credit privileges are also usually suspended for the term of the debt management plan. Some creditors will note on your credit report that you are managing debt using a credit counseling service. However, this is generally viewed as more favorable than negative.
The Federal Trade Commission (FTC) is the nation's consumer protection agency. It, along with a handful of state Attorneys General, recently filed lawsuits against a slew of companies they believe are guilty of ripping off consumers by charging high fees for services, lying about their nonprofit status, and not making payments on time—or, in some cases, at all—on behalf of customers. To ensure you are dealing with a reputable credit counseling service, look for an agency that offers a variety of services, including: • Budget counseling • Savings and debt management classes, not just debt management plans • Is licensed to provide services in your state • Provides written agreements that specify the services to be provided and all fees to be charged • Can demonstrate to you exactly what measures it has in place to protect the privacy of your financial information. Avoid doing business with any agency that is unwilling to answer your questions, and never, never, commit to anything without first receiving and reviewing a written service agreement from the agency.
You've taken a wise step toward managing debt by setting up a debt management plan. Now, you need to make sure the plan stays on track. Always, always make regular, timely payments to the credit counseling agency with which you are working. If you pay late, your debt management plan could be canceled, and you will lose the benefits the agency negotiated on your behalf. You should read your monthly statements promptly to make sure your bills are being paid according to your plan. Finally, if you find that you are unable to make a scheduled payment according to the terms of your debt management plan, contact the agency administering your plan immediately.
Consumer debt, or debt that includes credit card debt but not mortgage debt, is increasing twice as fast as personal income according to recent reports. If you are one of the millions of Americans drowning in credit card debt, you may be looking for a debt management solution. Fortunately, there are reputable credit counseling organizations throughout the country, many of which offer debt management solutions in person or via their Web sites. The problem is, there are just as many disreputable—some even downright fraudulent—credit counseling and debt management businesses online. Don't take debt management tips from just anyone. How can you find a qualified credit counselor? The National Foundation for Credit Counseling is a nonprofit professional organization of certified credit counseling agencies. You can visit the NFCC's Web site, plug in your zip code, and get a list of certified credit counselors in your area guaranteed not to be scam artists.
|Jennifer Mathes, Ph.D.|