How to Avoid Bankruptcy With Debt Management

Debt is an every-increasing problem for millions of Americans. And getting into debt has never been easier. With extra home mortgages, high-interest loans, and numerous credit card offers, it’s no wonder so many people fall into debt.

Further, as the economy continues to be weak, many people find themselves unable to pay their bills and they file for bankruptcy.

Bankruptcy is perhaps the easiest way to find relief from unbearable amounts of debt; however, it can also come with severe consequences. Whenever possible, a person should take a variety of other measures before turning to bankruptcy for relief. Bankruptcy, first of all, prevents a person from obtaining any credit. People cannot file for loans, and if you want to buy a home, it takes two years before you can qualify for home loan.

If you file for bankruptcy, you may even lose your assets, including your home, cars, and property. And recovering from bankruptcy is a long, drawn-out process. For at least three years, part of your income must go to pay your creditors, and you will have a blight on your credit report for seven to ten years. So even when you do qualify for credit again, it can still be difficult to purchase a loan or mortgage. And even if you are able to successfully take out a loan, your former bankruptcy means that you will have to pay higher interest rates than you would have had to otherwise.

Bankruptcy also makes it more difficult to save for things that are really important, including children’s education and retirement.

Bankruptcy can even damage future career opportunities. By filing for a bankruptcy a person becomes ineligible to become a director of a business or to hold other community and professional offices. Further, other people’s trust and confidence in you could be damaged, making it difficult to progress in your career.

Of course, sometimes bankruptcy is the only option available to some people in excessive debt. But it should not be seen as an easy way out. The consequences are anything but easy to deal with; rather, bankruptcy should be viewed as a last resort. The trick is to not let your debts become so unmanageable that bankruptcy becomes your only option.

If you find yourself falling further into debt, stop and take action now to better manage your debts. The following paragraphs include a few suggestions for those in debt on how to avoid bankruptcy and better manage your finances.

Of course, the first thing you need to do when managing debt is to stop purchasing things on credit. Further, if you have services or products you can live without, do so. Downgrade your car or cell phone plan. These products and services may seem like necessities, but once you’ve managed your debt, you will be able to have these things again, and this time without worry or stress about debt.

The best program for helping people get out of debt is an accelerated debt reduction plan. With an accelerated reduction plan, you organize all of your debts and make the minimum payment on all of them except one. You completely pay off one of your debts, usually the smallest one, by paying more money on it each month. When you’ve paid off that one debt, you move on to the next one, adding the money you were using to pay off the first one to the second one. And the cycle continues. Near the end, you should be paying a good chunk of money on just one debt until you become completely debt free. Accelerated debt reduction plans have been proven to be extremely effective behaviorally and are probably the best programs to implement when managing your debt.

When paying off your debts, many financial advisors suggest that you pay off the higher interest debts first. That way you spend less money on interest fees in the long run. Also, don’t borrow money for short-term purchases. Not only can small loans lead to major interest fees, but they also encourage the mentality that borrowing money for anything is acceptable when it is not.

Debt consolidation plans can also be effective if used properly. If you decided to consolidate your debts, you should make sure that all of your debts aren’t just swept into one big pile, and that you really are reducing your interest rates and number of payments.

Sticking to debt management plans can be difficult, and it’s easy to falter every once in a while and splurge on something you shouldn’t. Debt management takes discipline and motivation, and sometimes people need a support group to help them to stick to their debt management goals. Which is why Christian debt management services are often helpful. Aside from providing financial advice and helping clients develop a debt management plan that’s right for them, a Christian debt management service can also provide the extra bit of motivation a person needs to stick to his or her debt management goals.

Motivation is provided by structuring the debt management plan around common beliefs–in this case, Christian beliefs.

As debt is clearly taught against in the Bible, Christian debt management services will often provide daily reminders that help people keep their focus on the big picture. Their staff members will also help counsel, guide, and advise their clients according to the tenets of their beliefs. Of course, Christian debt management services are only one type of specialized debt management service, albeit the most popular. Finding support groups for people who are also trying to manage their debt wisely is another option to help you find the motivation you need to stick to your goals.

How Can Debt Management Help You – How Debt Management Works

You may have heard of debt management but perhaps not be quite clear what it is or how it can help you to get out of debt. Debt management is a proven system for dealing effectively with certain debt situations, but not all. This article will explain exactly how the process works and which circumstances are appropriate for using debt management.

Debt management is a way of consolidating lots of debts into a regular payment plan, which makes it easier to repay what you owe. This approach is sometimes referred to as debt consolidation, but that can be a little confusing because that term is also used to mean consolidating your debts by taking out new loan to pay them off. Consolidation loans are a completely separate process and should not be confused with debt management.

If you go to a debt management company for help and they assess your situation as being suitable for the process to work, they will set up what is known as a debt management plan. An experienced debt advisor from the company will approach all of your creditors to work out new conditions for the repayment of your debts. The aim of these negotiations will be to reduce or freeze the interest you pay and reduce or waive any other fees and charges that may have been applied for late payment, etc.

When these negotiations are complete, the overall amount that you need to pay out each month should be significantly less. To make things even better, you no longer have to deal with each of your creditors direct. You stop making payments to any of them, and instead just make a single monthly payment to the management company. The plan will last for a fixed period so you will know exactly when you will be free from debt again.

So how do you know whether debt management can help you or not? The process is not something where you can just take a decision yourself to try it. Your financial situation must be assessed by the debt company, after which they will make recommendations to you about the best way forward. You can save time by having a basic understanding of the general requirements for a debt plan to be a viable option.

A debt management plan can only help you with unsecured debts. If you are not familiar with that term, it just means debts that are not secured against some asset that you own, such as your home. Unsecured debts include most of the usual suspects that lead to debt problems, such as credit and store cards, personal loans and overdraft facilities. You cannot include your mortgage or any other secured loan.

Your unsecured debts normally need to be quite substantial, and always to a few different creditors. Some debt companies will accept as little as two creditors, but others require three or more. You are not likely to be accepted if you just have one large debt to one company, or if your debts are less than a couple of thousand.

For a payment plan to work, you need to be able to afford to make and keep on making a regular monthly payment, so it is important that you have a reliable source of income. Your finances need to be looked at carefully in order to be sure that you can to make such a payment after covering your essential household expenses.

If you do not fit the above criteria you may be wondering what else you can do if debt management is not able to help you. If you have a large amount of debt but you do not have the income to be able to afford a decent payment into a debt management plan each month, there are still alternatives that are better than bankruptcy. For US residents, debt settlement is a way of writing off a large part of your debt, but this only works if you are in genuine hardship and can show that you do not have the means to repay your debts. The equivalent process for UK residents is an IVA (individual voluntary arrangement).

If you do think debt management can help you, the first and most important step is to approach a few reputable specialist companies. Using a reliable and effective company is very important, as there are hundreds to choose from, and some of these might well leave you worse off. A good safeguard is to apply to two or three and compare what they say to you. Preferably start with a list of companies that have been recommended as being well established and reliable.

The Differences Between Debt Management Companies and Debt Settlement Firms

With the average U.S. household owing more than $10,000 in credit card debt, it’s no surprise that millions of consumers are turning to debt management companies or debt settlement firms to become debt free. However, there are enormous differences between these two types of organizations. A good debt management company offers free or low cost services, can help you preserve your credit rating, and will teach you to organize your finances and budget properly. It will also successfully negotiate with your creditors to give you financial relief.

By contrast, even with the “best” debt management companies, consumers pay high fees, wind up with serious blemishes on their credit files, and receive little to no financial education. Additionally, while many debt management firms “guarantee” their work, in reality they have no way to ensure that their questionable techniques and unorthodox negotiating methods will be effective. Read on to discover the downside to using the services of debt settlement companies – and why using a debt management company is far more advantageous.

The Hit to Your Credit Scores

The primary problem with debt settlement companies is that they typically advise you to stop paying your bills for a few months – sometimes for six months or more. At the end of that period, the debt settlement company goes to your creditors and tries to negotiate settlements on your behalf. The logic used by debt settlement firms is simple: They figure that after a few months of not getting paid, your creditors will be so eager to receive some money (instead of no money) that these creditors will gladly settle your debts for pennies on the dollar.

If only it were that easy.

The problem with this is strategy is two-fold. First, you wind up with serious black marks on your credit reports and you decimate your FICO credit scores. After all, just one late payment can drop your FICO credit score by 50 points or more. Imagine the damage done by being three to six months late on multiple accounts.

Plus, when debt settlement is “successful,” your creditors agree to accept less than the full amounts owed (even though they will consider the balance as paid). The creditors often then report to Equifax, Experian and TransUnion that your account was “Settled” or “Paid by Settlement” – which also tarnishes your credit records.

Does Debt Settlement Work – Or Backfire?

Additionally, there is no assurance that the methods used by debt settlement firms will work. Instead of caving in to a debt settlement company’s demands to let you pay, say, $30 for every $100 you actually owed, creditors may just decide to sue you, get a judgment against you, or garnish your wages.

The Better Method – Education and Reasonable Negotiations

Rather than use a debt settlement company, a better strategy is to first try to negotiate directly with your creditors. If your efforts fail, and you can’t keep up with your bills, then it’s time to enlist the help of a credit counseling agency/debt management firm. A good non-profit, HUD-certified credit counseling agency is the National Foundation for Debt Management.

Debt management programs typically take three to five years to complete; most debt settlement programs usually take two to four years. Fortunately, enrolling in a debt management program, also known as a DMP, shouldn’t backfire on you – as long as you continue to pay your bills on time. When you enroll in a debt management program, your credit files do include a notation that you are participating in a DMP. However, taking part in a debt management program does not adversely impact your credit rating, nor is it a factor in how your FICO score is calculated, according to executives from Fair Isaac Corp., the creator of the FICO score. Your credit rating also doesn’t suffer because you are paying back everything you owed in a typical debt management program. The cost savings come primarily from having late fees eliminated, and interest rates lowered – two key factors in helping you become debt free fast.

Don’t Forget About Debt Settlement Fees…. And That Big Tax Bill

Obviously, costs vary for debt elimination programs. But $25 a month is a common monthly fee for many debt management programs. Most debt settlement companies charge you in one of two ways:

a flat fee, which often runs $1,000 or more, and is based on how much money the debt settlement “saves” you by negotiating with your creditors
a percentage fee, with fees of 15 to 20% of your total debt being typical
So for those with $10,000 in debt, fees would run about $1,500 to $2000 for a 3-year debt settlement program, compared with about $900 in fees for a typical 3-year debt management plan

Why Pay Thousands When You Are Already Thousands of Dollars in Debt?

Besides the fees cited above, it’s not uncommon for debt settlement firms to impose added monthly charges on their clients. These fees can be as low as $20 a month or as high $90 or $100 a month, depending on the company in question. Over time, therefore, consumers shell out several thousand dollars – on top of the initial fees charged – when they opt to go with a debt settlement firm.

The IRS’s Viewpoint on Debt Settlement

If you enter into a debt settlement plan, one final hazard to be aware of is that you will have to pay taxes on the amount of money you saved. For instance, if your debt was $10,000 and the settlement plan says you only have to pay $3,000, you will be required to pay taxes on the $7,000 you saved. If you are in the 25% tax bracket, you’ll have to fork over $1,750 to the IRS, because the government deems your $7,000 in savings as income.

Clearly, there are many pitfalls associated with debt settlement programs. As a result, most consumers battling credit card debt would be far better off seeking out the help and services of a reputable debt management firm.

What to Look For When Selecting Debt Management Companies

Alongside the ongoing collapse of the American economy, with lender after lender filing for bankruptcy protection and real estate markets crumbling at the nation’s feet, there is, at least, one industry that continues to rise in both popularity and productivity. Yes, our debt management firms have shown exponential growth over the last few years, and, with the larger financial picture unlikely to change any time soon, consumers shall continue to flock to every company that promises a reduction of payments and interest rates for the debts that accumulated back in the good old days. You are, we’re sure, at least familiar with the notion of debt management.

From billboards to television commercials to soft-sell magazine articles highlighting the various approaches, debt management has become a buzz word for all segments of the economy whether or not you’re trying to get out of a negative equity residence or simply trying to erase a few thousand dollars of credit card debt whose minimum payments you can no longer maintain. In the greater sense, for most borrowers, undertaking the process of debt management will be to your advantage regardless of the path you choose. While there are obvious drawbacks to Consumer Credit Counseling (FICO score wreckage resembling that of Chapter 7 bankruptcies) and home equity debt consolidation (incredibly dangerous in a time of tumbling property values), there remains a number of debt management forms – debt settlement negotiation, which can reduce borrowers’ balances by as much as fifty percent with a few phone calls for relatively low cost to the pocketbook or credit report, chief among them – that have demonstrable value to even the most dubious debtor.

Of course, at the same point, for every good and legitimate debt management firm, there are others who are simply out to make the fast buck regardless of their client’s well being. In this article, we would like purely to highlight some of the more egregious complaints our correspondents have reported when attempting debt consolidation with the hope that you would be able to sniff out a malfeasant business and select one that truly has you and your family’s best interests in heart. Obviously, there is a good deal more investigation that needs to be done well before you even meet with a specific company.

Considering all of the different approaches to debt management available, you have to make sure that you have a full and complete grasp of each one, from debt settlement to Consumer Credit Counseling and beyond, before even looking at the different possibilities in your area – or, these days, on the internet. Ask yourself: is it possible to pay off your credit cards and unsecured loans through traditional means in a reasonable amount of time? How important will your credit rating be to your plans over the near future? Do you plan to buy a house or refinance your current residence in the next few years? Do you want (or, even, need) to maintain some lines of credit available during the process of debt management? These are questions for another essay, we shan’t possibly have the space to outline every potentiality (nor, obviously, could we pretend to know your own specific financial scenario), but you can do so much of this sort of fact finding with just a little bit of research about debt management and all that the programs entail.

Still, once you have decided upon a specific approach to follow, there are a number of warning signs to look out for when selecting your debt management company, and we would merely like to delve into a few of these threats. For one instance, you should always ensure that whichever firm you have considered working with requires all of the following data before they offer any sort of estimate: identity of each lender, the interest rates of each accounts, minimum (and, under unusual circumstances, maximum) payments requested from each lender, past and current late payments as noted (or about to be noted) upon your credit report, and, as well, any significant account activity which may include balance transfers or relatively greater purchases in recent years. If the company happily provides a quote without such information, this should seem highly suspicious to the borrower.

Even after a cursory analysis of the household’s financial information, legitimate debt management companies should be loathe to give much more than the vaguest of quotes – certainly not a complete good faith estimate – and, whenever businesses blithely pretend to know how much their services will cost before looking closely at all possible difficulties – red flags should dance before borrowers’ eyes. By all means, if the debt management professional begins to talk about your eventual payments and what they would hope the interest rates would be during the initial consultation, feel free to gather your paperwork and walk away.

At the same point, of course, while it is necessary to offer this information to your prospective debt management company during the application process, one shouldn’t just hand out your most personal financial data before making absolutely certain that the company is one to be trusted. Even beyond the question of honesty – as happens, many debt management companies will share such information with bill collectors and predatory credit card companies all too ready to shove near fraudulent balance transfer offers down the debtors’ metaphorical throats – there’s a separate issue of experience and competence.

Your authors have known overworked debt management companies that simply threw out their past files into recycling bins outside the office! In this era of widespread identity theft, keeping such information private couldn’t be of more grave seriousness, and you simply have to make sure that your social security number and similar data will be properly disposed of. In fact, you should have the debt management professional you consult with give you assurances in writing about their organizational guidelines regarding the destruction and confidentiality policies regarding client documents before handing anything over. For obvious reasons, your debt management partners will need to trade this information with the lenders that they will need to deal with over the course of debt negotiation, but representatives of those credit card companies should be the ONLY ones to be given access to such incredibly sensitive data.

Also, on the topic of documents, prior to giving the debt management company your paperwork – or, considering the FICO score’s reduced every time your credit report is checked, even your social security number – do try to ascertain some notion of their best guess, however vague, as to the costs expected. Once again, the more legitimate companies shall be far more reticent to provide any sort of estimate without detailed analysis of your accounts, but, if you give a close idea of the amounts of the balances as well as your FICO score from each of the three main bureaus, they should at least be willing to come to some theoretical notion of the potential expense. Much can be learned from the charge requested for the initial consultation with the debt management counselor.

While it shouldn’t be seen as odd for some negligible fee to be attached to the first meeting – expect something around twenty five to seventy five dollars unless the loan balances under contention are truly gargantuan – anything beyond a hundred dollars should be seen as a warning sign. As we continue to remind, you should also make sure to have written documentation detailing precisely what you will receive for this fee, and you should ask whether or not there will be further charges for enrollment or admittance or seemingly superfluous fees. Any debt management company that has several charges for essentially the same task will not stop there, after all. If you fall for these charges, lord only knows what they might try next. Furthermore, while that initial payment may be necessary up front (if they didn’t charge anything, debt management companies would be besieged by skinflints pressing they for advice or information free of charge), additional fees asked by the company should be able to be built into the debt consolidation process so that you would never have to pay one lump sum all at once.

Speaking of the payment terms, they (it should go without saying) depend almost completely upon both the total amount of the credit card balances and the specific debt management approach that you end up selecting. The approach really does matter. Debt settlement rarely allows borrowers to maintain payment schedules lasting longer than five years while home equity loans can continue racking up compound interest for decades and Consumer Credit Counseling, as with so many things, remains eternally malleable to the borrower’s demands. However, you should be able to figure out what the debt management company costs will be each month before agreeing to their program. Obviously, you have to expect that their will be some sort of monthly administrative charge – this is how the companies make their money – but it should not be any higher than ten dollar per month.

Many of the less reputable debt management firms attempt to hide redundant charges within the monthly payments, and some of them add on an additional annual expense for exactly the same efforts! Not to repeat ourselves, but this is why a close perusal of the final good faith estimate is such an integral part of choosing the debt management companies. If it’s not within your capacity or if you haven’t the time (since so many borrowers who need to consider debt management are holding down two jobs), ask any of your friends or family who may be more experienced with financial matters or who have an accountant upon retainer if they could take a look to weed out such unnecessary fees. Sometimes a creditor will even insist upon proof of payment to the debt management firm in question before they undertake serious negotiations, but, as with everything, this should be verified beyond possible dispute.

While on the subject of monthly payments, another element of debt management that many borrowers unused to dealing with this sort of financing tend to ignore revolves around the lenders themselves. Remember, you are entrusting all payments to be made – which, in essence, means entrusting your credit rating for years to come – to the debt management firm, and it’s of the greatest importance that they understand and acknowledge their responsibility. Particularly lax or incompetent debt management companies (or, even, those companies that themselves have liquidity problems) have been known to delay the payments to creditors that they have been charged to transfer out.

After debt management, you will be sending the checks to the management company, but, in many instances, you will still be held liable by the credit card companies for the obligations that you originally signed on for. Make sure that you understand precisely your debt management partners’ plans for timely remuneration of the credit card companies and – we apologize for the repetition but this cannot be underlined sufficiently; too many households have been lost to oral agreements – get everything down on paper. For that matter, force the debt management company to send along a notice each month that records their payments to the various lenders alongside some tracking system available over the internet. As ever, should the debt management professional suddenly blanch or in any way act as if this is outside the bounds of his responsibility to his client, feel more than free to walk out the door. Indeed, feel that it is your duty to remind the company about industry standards.

As to the payments themselves, we fall into another grey area. So much of debt management depends upon a knowledge of the individual situation that it becomes increasingly hard to remotely advise borrowers as to what sort of plan or program would be to their best advantage. However, regardless of the household’s debt situation, some aspects are not relative. While the amount of monthly payments suggested by the debt management specialist that you are working with may, indeed, jump up or down by thousands of dollars when put into comparison to your income and debt load, the actual ratios remain stagnant. No matter what, there needs to be costs of living built into the structure of your debt repayment, and, even with a strict budgetary policy that forgoes previous liberties, some expenses are bound to be constant.

Your debt management professional must be able – and, more to the point, willing – to adapt the overall goals you must both be striving towards (to eliminate consumer debt as quickly as possibly so as to reduce the potential effects of compound interest) with the sad realities (day to day household costs plus some money set aside each month for savings). While you do not want to work with a debt management professional that blithely allows your debts to continue for longer than necessary to assure himself and his company of continued rewards, you also don’t want to be at the mercy of any debt specialist so obsessive about debt relief and so absent empathy about the actual plight of his clients that they suffer unnecessarily to save a few bucks over the course of the program.

Put plain, you need a debt management firm that understands you and your family’s current living conditions as well as your eventual long term goals and aspirations – presuming a debt-free existence to be paramount among them. Much as you should look twice at any debt management plan that features suspiciously low monthly payments, do not immediately trust another company simply because the payments are markedly higher no matter how quickly they promise you would be able to repay all current obligations. There’s far more to debt management, at the end of the day, than simply eliminating what debts you have this very moment, and budgets set by debt management professionals that clearly have no idea and less interest as to your actual expenses just won’t be feasible over the long haul.

There are so very many different debt management programs and debt counselors with which you may work when attempting to solve this problem that it would be foolish to fall for the first relatively decent offer and it would be something worse to allow yourself to be tempted by the budgetary elasticity of low payments OR the guild-ridden asceticism that too-high payments indulge. Ask around! Check out the competitors! As long as you have documented figures about your current credit accounts as well as your three FICO scores (or, better, if you have access, the actual credit reports), it is worth the time to talk to even a dozen debt management shops in order to make sure you’re getting the deal that’s best for your family’s finances. Debt management is a sparkling new industry, and you can’t simply hope to follow the path or your grandfather as you might for a home loan or mechanic. Research must be done and done seriously. This isn’t like cramming for a test or trying to brave your way through a DMV exam. Your selection of debt management specialists will impact your household’s next decade for better or, as too often happens, for worse.

This article, by no means, should be seen as the only resource available for your household. There are an infinite number of debt management scenarios to be considered and an equal amount of potential landmines. Much as your local Chamber of Commerce and Better Business Bureau largely survive upon paid membership, they do – grudgingly, it should be remembered – keep a backlog of prior complaints from unhappy clients, and it should not be that difficult to request information about any company you have been considering. Also: see if the firm of choice maintains any professional affiliations. Many of the more legitimate Consumer Credit Counseling outfits have recently been accredited by the government following the 2005 changes to the United States Bankruptcy Code (all those who declare bankruptcy must now, on their own dime, take absolutely needless courses on debt management; yet another way in which the congressional alterations of Chapter 7 makes the bankruptcy alternative less palatable for ordinary consumers) and that’s one way to ensure at least some competence and experience from the organization.

Debt settlement negotiators, on the other hand, must be certified by a national board, and, should you go through that (ever more popular, with good reason) route, make absolutely sure they can prove such certification. Nevertheless, as with so much involving debt management, the final decision rests with you. Nobody can hold your hand, least of all an on-line article, when deciding upon the men or women who shall shape your financial future. Study all the information that you can, take a hard look at your own finances, and, at the end, remember that the debt management specialist you end up with will be tied to you and your family’s finances for a long time to come. With that understood, choose your debt management solution accordingly.

The Most Effective Debt Management Solutions

So, you’ve found yourself in debts that you cannot control, and aren’t sure what to do. For that matter, you’re not sure if you really want to trust your finances to one of the debt management companies you’ve seen advertised or heard friends and co workers talking about. There are other possibilities, of course. Play the lottery, wait for some unremembered relative to grant an undeserved bounty, consider the value of the baseball cards cluttering the basement, or, simply, dig your head in the sand and avoid all worries about the credit card bills piling on the floor. In all likelihood, they’ll have about the same chance of success in terms of debt management. Easy enough to imagine that things will work themselves out without drastic changes in your household spending or overall behavioral alterations as regards buying habits, but – save some miraculous gift of fortune – the creditors shall inevitably get theirs no matter the attempts toward purposeful ignorance. This is where debt management comes in. When dealing with a competent and trustworthy firm, after all, you don’t have to worry about surrendering your problems to an external force. Debt management counselors will work with the borrowers hand in hand to aid them in their struggles and completely explain every step along the way.

At the same point, however, there are steps that can be taken before you first begin investigating debt management authorities. The businesses you eventually work with should even expect you to start looking through your financial obligations and making some decisions by yourself. After all, throughout the debt management process, there are certain rules of thumb that every borrower should thoroughly understand and guidelines that each household, regardless of how much money they may make or how tragic their financial status may be, should acknowledge. Think of the overall theory of debt management as a simplified flow chart. Eventual debt elimination should be the focus, of course. Aside from those secured loans such as home mortgages (which could reasonably be considered an investment) and the one or two credit cards every consumer should have (with low balances, paid monthly, to heighten credit ratings and FICO numbers), the goal of debt management is, after all, an end to debt.

To that end, until you’ve recorded all of the information from every creditor, you really don’t know just what your debt situation is. Take the time to write down every important aspect of your credit card accounts (alongside whichever additional debts you may have accumulated) and put all of the obligations in order from the lowest interest rate to the highest. In most cases, you will want to pay off the highest interest rates first, of course, but there are other theories as to debt elimination – some debt specialists would advise taking care of the smallest balances before all else so as to provide positive reinforcement and propel the borrowers forward through their debt relief mission. Through all of this, of course, you have to still make sure that the minimum payments for each account will be satisfied every month on time. Ideally, your checks should even be sent early enough ahead so as to prevent the lenders from delaying processing of the payments and assessing further penalties or lowering your credit reports status. Also, much as you should remember to concentrate upon the debt with the highest interest rate (and, after that’s done, work to pay off the next highest and continue in that pattern), you should not neglect the everyday costs of living nor avoid saving for unexpected expenses.

When thinking about debt management, there are more things to consider than just paying down the outstanding credit card balances. No matter what, especially in the current economy, you’ll need to also consider those day to day expenses like gas and electricity and all of the other monthly bills. While it’s true that, compared to the immediate action that results from missing a revolving debt payment, utility companies will be far more relaxed in their collection attempts. Since the majority of the utilities have to worry about some local government supervision, which means political repercussions should borrowers be left to freeze to death, they are remarkably malleable when forgiving a month or two of missed payments (without reporting such to the credit bureaus). Still, you have to remember, there will come a point where the utility company will have no choice but to halt services, and, above and beyond the effects upon your credit rating, that can come as a drastic, perhaps life threatening hazard to be avoided at all costs. You can’t work on your books if there aren’t any lights. Also, you need remember, once any utility service has been terminated, there will be additional charges to have that service to be restored. These are the sorts of what may seem like trifling costs that unwary or lazy borrowers let regularly accrue, and there couldn’t be anything sillier than paying double the monthly bill (let’s face it, you’re going to want your water service restored) due to a week’s avoidance of responsibility. Like most every thing involving debt management, you need to speak regularly with the representatives of the people that you send your money to as to avoid any future complications should problems arise. These utility companies are uniquely open to payment schedules that minimize borrower obligations and let their less fortunate clients lapse their burdens for length periods. For those especially poor off candidates, the government may even step in to subsidize some utility payments. This might sound humiliating to a degree, but debt management has its own momentum and, once again, there are certainly more grave consequences.

Above all else, desperate borrowers must remember to keep sight of the real dangers when attempting debt management. However unfortunate repossessions or lawsuits may be, the true threat wouldn’t just be the attacks upon bank accounts or garnished wages or the loss of property. Any debt issued by the courts or the state or federal government should have a clear priority. While property taxes unmet inevitably necessitate a lien upon the property in question and themselves have the risk of a different sort of foreclosure, past due income taxes, more than anything else, must be dealt with else the scofflaw consumer face actual time in jail. The same could be said for child support or alimony or any debt that the courts deem so important that a failure to satisfy the obligations would threaten imprisonment. Student loans, on the other hand, though every former college student must face an ethical dilemma, won’t ever land defaulted applicants behind bars. However, virtually all loans originated to help students through higher education have been protected through the United States treasury and, as such, maintain special powers such as the garnishment of income without the trouble of an actual trial. Since student loans have such enviably low interest rates and decade spanning payment schedules, though, there’s virtually no reason that borrowers need worry about garnishment as long as they maintain a constant communication with the representatives of the lenders.

Come what may, tax liens and any debts actionable by the courts and their officers are of the utmost importance for every American citizen. Secondarily, you should take extra care with any property debt – particularly considering the current environment regarding real estate loans. Much of the negative publicity that has surrounded mortgage loan lenders should be laughed away as political positioning, but, through countless mortgages and equity loans handed down to home owners that were clearly not able to appreciate the challenges of the obligations they had signed on to accept, the home lending industry has taken quite a blow. As a result, refinancing is more difficult than ever for borrowers already stricken with debt loads they can’t quite manage, and home equity can not be over estimated as the signal emblem of financial security. After all, do not just worry about the investment potential of the home (recent trends aside, there’s no reason to assume that appreciation should not continue), this is you and your family’s shelter! Foreclosure proceedings can be legally launched once you are only three months behind with your payments. To be sure, given the aforementioned glut of foreclosures currently afflicting Americans (and the accompanying bad publicity attached to the lenders themselves), there may be a little more wiggle room for defaulted mortgages. Still, though, after the first missed payment, it’s always that much harder to climb back on your feet, and the home is the most important investment most Americans will ever have. There’s no point to debt management if you end up losing your residence.

In the same way, even if you are not a home owner, while working to manage your credit card accounts through debt management, make sure you do not also ignore the rent payments. Eviction proceedings can happen even quicker than foreclosure and being evicted from your apartment has similar repercussions to credit scores – and, if needs be said, can just as severely affect your income potential and overall mind set (as we’ve said, a comfortably home environment should be thought of as a key to successful debt management). Also, while you are setting aside a budget for debt management and calculating how much money’s available for credit card accounts, don’t forget about your car payment when assessing which bills you may be able to occasionally ignore. Automobile loans tend to feature relatively lower interest rates. However, they’re also very quick to repossess your vehicle if given the opportunity, and that would most assuredly hamper your continued employment as well. Debt management doesn’t only refer to the elimination of credit card accounts but also a lifelong attention and organization of even those debts that you may want to maintain.

Difficulties with auto loans should be particularly worrisome for problem credit borrowers that had to involve shadier finance companies to originally afford the auto. These companies, depending on the fine print of your contract, will not even be legally required to provide written warnings before alerting their repo divisions. Much as the interest rates will be substantially lower than credit cards (which many of these businesses also offer – at sky high rates, to be sure), such predatory lenders take the risk of financing primarily in the hopes that they will be able to take advantage of the much more lucrative repossession market for your car or truck, and keeping your payments up to date should be an essential component of debt management. Another key, when assembling your budget and making a list of necessary due dates, should be to remember to always make sure auto insurance payments are on time. This shouldn’t be solely because of the law, though that should be reason enough, but, in the event your vehicle insurance is canceled, the lender’s have the option of forcing you to pay for their own insurance which carries with far higher premiums for limited benefit that can sink any well meaning attempts toward debt management.

It’s important to recognize the varying priorities of your debts – that’s the point of this article, after all – but, while the ladder of obligations must be clearly outlined, a knowledge of what you should be doing to enable your personal debt management strategy isn’t nearly as important as the ability to actually undertake a successful debt management program. In this sense, added income would obviously be the most helpful to every household, but, for those borrowers that cannot reasonably hope to better their earnings on a regular basis, most every American can at least lower their outgoing expenses through a process of careful budgeting and attention to unnecessary costs. If you truly want to free yourself from the accumulated debts, there needs to be a greater overall change of life and behaviors. Take a close view of your purchasing instincts, and try to figure out ways in which you may be able to reduce the needless costs so many households develop. Above all, figure out how to exist within your budget and best determine the lifestyle that you and your family must adapt towards in order to most efficiently manage your debts. Take care to crop your household spending to the bone, and avoid attaching any further debts to your name. If it’s possible for you or another member of your family to find additional earnings, whether through a second job or an at home business, that would be of an obvious benefit for debt management. Though this may not seemingly be the best time for this particular advice to succeed, you may even attempt to find a job with higher income potential or a career that would provide greater likelihood of advancement. See what you yourself can do to eliminate financial burdens. Debt management companies may be an excellent resource, but the debts remain yours and you cannot expect anyone else to sweep them away.