Strategies For Lowering Your Debts

Smart money management skills are learned not inherited. While most of us do our best to avoid the pitfalls of overwhelming debt, life circumstances can push us over the edge at times. Finding the right solution to lowering a debt burden isn't always easy and some people find the process to be confusing. Knowing the difference between debt resolution strategies and their benefits can help anyone make an informed decision about their debts.

Debt Management Plan

A debt management plan is a structured plan that a debtor develops aimed at reducing their debts without the help of third parties or their creditor. Common plans include a strict budget that outlines each debt payment as a priority expense each month. In some plans, people choose to pay minimum payments on all but one debt, and pay as much as possible to one debt account until it is paid off. Once the debt is paid off, or lowered, they move to focus all their additional money on the next account. Debt management plans are great for those who are focused and consistent with following their outlined budget. However, they should not be used if a person's income is unpredictable or they are at risk of missing payments of any kind.

Debt Negotiations

Credit negotiations provide a way for debtors to negotiate a lowered debt payment with their creditor directly. Most debtors request a lower interest rate or lowered monthly payment requirement when negotiating with creditors. Negotiating debts can ease the strain on a person's monthly budget while still allowing them to make payments and stay out of delinquency. Credit negotiations are great for those who have a predictable income, even if it isn't sufficient for full debt repayment, and are not considered seriously delinquent. However, negotiating with creditors may be difficult if a person is already in default or cannot prove their ability to maintain a modified payment schedule.

Debt Settlement Agreement

Settling debts is a way to satisfy a debt with a creditor without having to pay the full amount owed. Many creditors will agree to settle a debt if they feel the debtor may be at risk of filing for bankruptcy. Creditors would prefer to accept less than the amount owed than risk losing all of the debt repayment through other actions. Debt settlement can provide the debtor with a way to alleviate their delinquency status and be absolved of liability over the debt. However, debt settlement agreements can be difficult to come by if the creditor feels the debtor can afford to repay.