Different Types of Debt Management

If you find yourself deep in debt, it is usually a sign that some measure of debt management is in order. Debt management is an umbrella term that covers a variety of methods for getting debt under control and working to reduce. The three main types of debt management are: debt negotiation, debt consolidation and debt consolidation loans. One important thing to remember during debt management, however, is that truly getting out of debt requires lasting changes.

1. Debt negotiation. This is a rather interesting method of debt management. This type is recognizable by commercials that promise to help you get rid of debt without paying it all off. Basically, debt negotiation consists of you negotiating with credit card companies on how much of the outstanding balance you will pay. When you use a third-party to do this, you start paying a monthly amount to the company, which puts your payments into an account, where it adds up. You stop paying creditors, and the company negotiates with them on your behalf. Usually you end up paying between 35% and 70% of the outstanding balance. The debt negotiation company uses the money in the account you pay into to pay off the creditors as they settle. Debt negotiation works because by the time you get to the point of debt management, the company has already made back more than the original amount lent to you through interest charges (especially true of credit cards). It is worth noting that you can carry on debt negotiation directly with the companies on your own.
2. Debt consolidation. Regular debt consolidation means you go to a debt management company and ask them to help you get your debt under control. Usually, the company makes an arrangement with creditors to reduce the interest rate (thereby reducing payments). You turn all of the account information to the debt management company. You make one payment each month to the company, and that company in turn makes the payments to each creditor. This is convenient for many, because it helps them to simplify their debt by having only one payment to make each month, rather than many.
3. Debt consolidation loans. Like regular debt consolidation, loans can put all of your deb into one place and simplify matters by reducing the number of payments each month. But, while the above debt consolidation is not a loan, with a debt consolidation lend you take out a loan big enough to pay off the smaller loans. You pay interest on that loan, and some problems can arise. Many debt consolidation loans are taken out as home equity loans. While they ensure a better interest rate (and one that can be tax deductible in some circumstances), they also come with the risk that you lose your home if you can't make payments.

It is important to note that any debt management method comes with pros and cons. Debt management can help you get back on your feet. But you should also expect your credit rating to drop once you enter a debt management program (especially if it is debt negotiation and you stop making payments), and that debt management can have dire consequences if true and lasting changes in your habits aren't made.