Monday, June 14, 2010

Debt Management: For Homeowners Only?

The best debt solution for your circumstances depends on a number of things like your income and expenses, your outstanding balances, your employment, and residential status.A debt management plan is an informal debt solution that may also involve budgeting and debt consolidation. The best debt management involves counseling and learning budgeting skills, so that you don’t end up in hot water again. Normally, your counselor contacts your creditors and negotiates lower payments and interest rates on as many accounts as possible. Then you make a single payment to the plan, and the service distributes it to your creditors.

Do You Need to Be a Homeowner?
You don’t have to be a homeowner to start a debt management plan. You just have to show that your current repayments are unaffordable, and that you are able to commit to regular reduced monthly payments.
The advantage of being a homeowner is that you may be able to add debt consolidation to your plan. By taking a home equity loan or doing a cash-out refinance, you could pay off the higher interest credit card debt and lower your payments considerably. Keep in mind that by stretching out your debt over 15 or 30 years you could end up paying more interest over the life of the loan. Still, debt consolidation by home equity loan or refinance can give you some breathing room, and you can always choose to make extra principal payments and lower your interest expense over the life of the mortgage.
Debt Management Education
An expert credit counselor is key–many so-called counselors are just salespeople who push everyone into the same plan. You want someone who provides some budgeting and credit education as well as debt management services. A reputable company should charge $100 or less, spend time evaluating your finanical situation with you, and discuss spending and lifestyle changes first. Streer clear of agencies that give you a hard sell and push a debt management program without offering alternatives. Keep in mind that non-profit status doesn’t mean that a service is any better or lower-priced. You need to evaluate it on its merits. The U.S. Dept. of Justice keeps a list of approved counselors on its Web site.
Debt Management: DIY
It’s possible to arrange a debt management plan yourself. You can negotiate interest rate freezes or reductions with your lenders directly, and if you have a good payment history with them and a documentable hardship, they are often willing to work things out. The process, however, may be time-consuming and stressful, and perhaps embarrassing. That’s why many prefer to have a debt management company deal with the negotiating, paperwork, and distribution of payments.


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