Credit and Debt management
Many of us has experienced, that setting financial goals and creating budgets, can help us manage our money. However, it is also important to manage our debt.
Debt management is a way to keep up with your bills, especially if they have seemingly gotten out of control. You can use many strategies to manage your debt, which we will come in to later on.
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What is debt management?
Debt management is a way to get your debt under control through financial planning and budgeting. The goal of a debt management plan is to lower your current debt and move toward eliminating it completely.
You can make a debt management plan yourself, or you can get help to make the plan. Both ways have advantages and disadvantages. Setting up a plan yourself is the simplest way forward, but sometimes it can be helpful to have an outside partner providing help or accountability.
How does debt management work?
Debt management plans are meant to address unsecured debts like credit cards and personal loans. Debt management usually happens in one of two ways.
Do-It-Yourself debt management
The first option is a DIY version of debt management. In this version, you create a budget for yourself that will allow you to pay off your debts and maintain your financial stability. You will usually use the debt snowball method or the debt avalanche method when you use this option.
You can negotiate with your creditors to try and lower your monthly payments or interest rates to help you decrease your debt.
Once you have gotten the debt under control, you can decide if you want to keep or close an account.
Debt management with professional help
The second form of debt management is to go through credit counseling. Some offers this service for free, and other will charge you.
A credit counselor will help you come up with a plan to repay your debt and can negotiate a payment plan with your creditors. This payment plan is meant to help you eliminate your debts.
Other financing options to handle debt
Beside the debt snowball method and the debt avalanche method there are other options
Personal loans give you the chance to receive a lump sum of money that can pay off your debt all at once. A personal loan is a good option if you know that you will need more time to get your debt under control. Personal loans will offer a repayment period that typically ranges from two to seven years. Unlike a credit card, you will have to repay your personal loan by the end of the specified time period.
If you have strong credit, it could potentially save you money on the interest or make it easier for you to manage your debt.
If you have strong credit and high-interest debts, refinancing your debt could help you lower your interest rate, have smaller monthly payments, and help you save money overall.
Once you’ve read the text on the topic, it’s time to test your knowledge.
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