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Understanding the Basics of Debt Management

By Ruth Racey
Published: Tuesday, August 3rd, 2010

Debt management is a plan to get out of debt without hurting your credit scores. There are many articles on the internet that talk about the benefits of debt management and how debt management help companies can benefit you but none of these articles tell you what you really need to know about this concept. This article will explain to you the basics of debt help and some things you need to be aware of. 

Understanding the Concept of Debt Management Help 

This term is used to imply that a third party company takes in all your debts and instead ask you to pay one installment periodically to clear your dues. While many debt management companies offer financial services a few companies provide only counseling and advice. The benefits of opting for this scheme include that you pay lower interests on your debts and you are asked to pay one company instead of many. 

Understanding What Settlement of Debts Means 

Settlement is a term that is often used instead of debt help but the meaning of both these terms is very different. In debt help you pay off all your dues with a lower interest rate but in settlement you are asked to pay an amount lower than what you have taken. Most people who agree for settlements do not realize that this method of paying debts is not ideal since a settlement can harm your credit scores. 

When you opt for a settlement the company you are dealing with sends a report to the credit bureau that in turn makes a note that you are paying a lower amount than what you had received. This makes lenders aware that you are likely to default in the future and many lenders may refuse to give you credit due to this.

Clearing Your Debts Yourself without Opting for External Help 

If you want to clear your debts yourself then you should consider making your own debt management plan. Your debt help plan should consist of making monthly expense charts so that you know how much you earn and how much you spend. You should also try to pay by cash, avoid maxing out credit cards and save money whenever you can. Before taking a loan you should try to save money so that you do not need to worry about a few installments in case something goes wrong.  By following these simple steps you can not only get out of debt but you can also prevent from falling into debt again.

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