The basic definition of Debt Management in financial terms is managing or assisting the repayment of debt of a person by a specialized third party.
Another definition could be expertise provided to bring ones' expenses under control making it less than what one earns.
Companies specializing in this offers help to persons having huge debt and damaged credits.
People who found it difficult to manage ones' debt engage the services of debt managing companies or might be forced to do because of courts' order.
Because of change in United States bankruptcy laws in 2005, an individual cannot declare himself to be bankrupt.
He or She has to work towards a long term plan to pay off the creditors.
Debt Management Plan This Plan basically refers to steps drawn by a hired or free third party agency to help pay off the debt over an extended period of time.
The debts could be of personal unsecured nature.
The repayments on the debts could be always late or it might be too large to pay in the present income.
The company, thus, draws out a plan with the creditors through which one can pay regularly within his or her present monthly income.
Working of Debt Management Plan It usually involves a series of steps on which the third party organizations works at together with the debtor.
The first step is usually compilation of a list of all creditors to which money is owed.
Next step involves finding out the exact amount of money that has to be paid back to each creditor.
Secured debts, like home loan or car loan, is typically not involved in this plan.
Next step involves the calculation of debtors' income and necessary payments like mortgage payments, payments towards car loan and money needed to meet food and utilities expenses.
The third party involved finds out the maximum money that is available towards debt repayment.
The third party organization also negotiates with the creditor for lowering of the interest rates, reduction of amount of debt and monthly payment.
Limitation on Involving the Debt Management Companies The debt Management companies can only be involved in case of unsecured loans.
The total amount of loans should be in excess of 10,000 dollars.
Any third party organization should be registered with the Better Business Bureau.
Any involved Third Party should not charge unreasonable fees.
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