Econ 101

debt management basics

// March 26th, 2010 // Debt

Debt management involves implementing a strategy that will allow people who’s expenditure exceeds their income to rebalance their payments so that they become affordable and that after a specified period of time their debts will be satisfied.

Any debt management plan will look at a person’s debts and prioritise them into debts that must be paid, such as mortgage payments, council tax, utility bills, transport costs necessary for travelling to and from work, and court fines. Also the plan will take into account the fact that money is needed for food, clothing and other essentials for living a normal life. Once allowances have been made for all these, then what remains of a persons income will be utilised to repay their other debts, for instance credit and store cards.

Most credit card companies recognise that sometimes people do get into difficulties, sometimes through no fault of their own and sometimes through fecklessness in taking out too much credit; the second one of these may well have, in the past, been encouraged by the credit card companies themselves. Thus they recognise that in some situations they need to cooperate with their debtors in order to help them find a way out of their situation whilst repaying at least some of the money they owe. As a consequence, often they are willing to freeze interest charges and late payment fees.

Although possible, it is very difficult for an individual to set up a debt management plan on their own. Dealing with credit card companies can be very difficult when dealing on one’s own behalf; one reason being that it is difficult for the individual to be objective and divorced from emotion, and another is that the credit card companies are more likely to be cooperative with a third party who is skilled in dealing with them.

There are four ways to implement a debt management plan. The first is to go it alone as discussed above; the second is to have the matter settled by a county court; the third way is to use a charitable organisation such as the Citizens Advice Bureau, and the fourth, which is most cases is the most effective,  is to use a professional debt management company.