Debt Management: The Pros and Cons
A Magic Solution?
When your debts are getting out of control and you can't see a way of solving them, a debt management program could seem like the perfect way out.
While it's true that in some cases it's a good solution to debt problems, debt management isn't a magic bullet that will painlessly take away your debt.
You still have to repay your debt!
When all's said and done, you have debt that needs to be repaid in one way or another. The many spam emails you probably get saying things like 'clear your debt without paying a thing!' are, basically, a pack of lies. Short of bankruptcy or doing a 'midnight runner', you can't simply leave your debt behind.
Where a management program can help, though, is in having the interest on your debt frozen. This means that from now on, all your repayments will go towards paying off your debt rather than servicing interest charges on it.
Your total debt will therefore reduce more quickly if you keep up your current repayments, or more realistically, by not having to pay interest your repayments can be shrunk to a more manageable level for your budget.
The Effects on credit rating
A management or counselling program shouldn't be entered into lightly, as it will certainly have a detrimental effect on your credit rating.
However, if you're at the stage of considering entering into debt management, you've probably already missed a few credit repayments and started getting into difficulties, and this will already be showing up on your credit record.
And the alternatives - defaults, repossessions, or even bankruptcy - are going to be at least as damaging to your credit status.
Benefits of Debt Management
One of the major benefits of a formal management program is that the whole business of dealing with your creditors is taken out of your hands, which will doubtless be a weight off your mind and lead to a less stressful life, even bearing in mind the points above.
And so, while debt counselling / management is in no way a magic bullet solution to your debt problems, it can certainly be helpful when other possibilities such as debt consolidation or even just careful budgeting are not an option.
© 2008 Debt Sorter
