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What is debt management, and how does it work? (+ tips)

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Person doing their own debt management at a table with papers and a tablet in front of them

Think of debt as a tool for a second.

Tools are wonderful! They help us to do a lot more (usually a lot faster too). But tools can hurt us when we’re careless and use them recklessly. Debt is no different.

Today, we talk about how debt management makes it safer to use debt, and how it can help us to recover from stressful financial situations.

Let’s get started.

 

What is debt management?

Debt management refers to the process of using budgeting, financial planning, negotiating with creditors, and leveraging debt consolidation to control, reduce, and pay off debts.

Anyone who wants to start managing their debt can do so themselves or can use a service like debt review to make the process more efficient.

Both approaches have their own perks. It comes down to what works for you.

Here are the two types of debt management:

  • DIY debt management
  • Debt management with a debt counsellor

 

Before exploring each of these options, let’s look at why someone might consider debt management.

 

The benefits of debt management

What happens when a new approach gets introduced and how debt gets managed improves? Benefits kick in. And some of these are awesome. Here’s the list:

Advantages of debt management
  • Better repayment terms (lower interest and/or more affordable debt bills)
  • Simplified monthly payments (with consolidation)
  • It costs less (saving money on late fees and penalties)
  • Improved credit score (potentially, depending on the approach)
  • Less stress and financial worry.

 

Pretty cool, right? Don’t worry if some aren’t obvious yet. Each advantage will make more sense while we review the debt management types and how they work.

 

A graphic that displays and describes the two types of debt management. DIY, or with a debt counsellor

 

Two types of debt management

DIY debt management

DIY = do it yourself.

Going the DIY route means following a set plan, getting familiar with all the accounts, and sticking with a self-imposed strategy to repay the debt. 

Follow these steps to create your own debt management plan:

  1. List all debts
  2. Create a budget
  3. Prioritise debts
  4. Make a debt repayment plan
  5. Pay more than the minimum payment
  6. Avoid new debt
  7. Track your progress

 

Simple, right?

 

DIY debt management highlights

Who this is best for:

People that can still afford to repay their debt and want to benefit from a structured approach.

Biggest advantages:

Pulling it off properly can be fantastic for the individual’s credit score.

Biggest disadvantages:

You miss out on the legal support that other options provide.

 

Debt management with a debt counsellor

This is the second debt management option. And it involves getting the help of a debt counsellor by applying for debt counselling.

If you’re unfamiliar with this concept, you might wonder how it works. Here are the basics:

  1. The person that would like to improve how they manage their debt reaches out to a debt counsellor.
  2. The debt counsellor assesses their finance to see if the individual qualifies.
  3. Once approved, the debt counsellor works with the court and the individual’s creditors to create an affordable, more sustainable debt repayment plan (one that accounts for the person’s income and expenses, plus the cost of their debt, and then reduces how much is due each month).
  4. The over-indebted individual gets to repay a lower monthly instalment for the duration of the debt counselling process until their debt is repaid (+ get to enjoy other perks like legal protection).

 

For a complete overview that covers everything you’d want to know, check out our post: How debt review (debt counselling) works.

 

Struggling to keep up with your debt?

Our team can help make your debt affordable once again.

We help thousands of South Africans to reduce their monthly debt repayments, protect them from legal action, and keep their assets — our team can help you too.

 

Getting in touch to get started with professional debt management is easy.

  1. Find an NCR-registered debt counsellor that you want to work with.
  2. Get in touch via their website, phone or email.
  3. They’ll take it from there.

 

Shameless plug: We’re a registered South African debt counselling company. Try our quick online assessment to see if you qualify.

Let’s look at the highlights of using a debt counsellor to manage debt.

 

A graphic that compares the benefits of DIY and professional debt management

 

Professional debt management highlights

Who this is best for:

Over-indebted individuals. That means people with too much debt, that are struggling to afford their monthly debt bills and essential expenses.

Biggest advantages:

Debt counsellors reduce monthly debt repayments for a living. Getting a lower, more affordable monthly debt bill while doing debt counselling is a guarantee. Plus, there’s a layer of legal protection and accountability.

Biggest disadvantages:

Debt counselling restricts access to new credit. This is actually a great thing since it protects the consumer and ensures that the existing debt remains affordable. But naturally, not everyone is a fan, and most people want to continue to rely on new forms of debt to keep things afloat (thus, this one = a disadvantage).

That’s debt management, and two types that anyone can choose to utilise to take control of their debt. But what about other considerations? What other factors play a role in the decision-making process? 

Let’s find out.

 

Debt Management considerations

Does debt management affect your credit score?

Yes, debt management does have an impact on credit scores.

Hard inquiries, reduced repayments, and credit utilisation could affect your credit score throughout the debt management process. The result depends on the debt management strategy and the user’s credit score before introducing debt management.

Bad credit scores can see a slight positive change as missed and late payments shift towards regular on-time payments (albeit reduced in the case of debt counselling). Whereas good credit scores may see a negative impact in the short term.

 

A graphic that illustrates the impact of debt management on a credit score by current rating

 

It’s worth noting that most people that are struggling with debt already have less-than-perfect credit scores, to begin with, and that the best way to build a strong credit score is by having debts under control.

How long does professional debt management take?

The length of the debt counselling process varies based on each applicant n’;t financial circumstances. Generally, the process lasts between 36 – 60 months, but can be much shorter and can end earlier. Check out our blog post: How long does debt review last, to learn more about the duration of the process and how to speed it up.

 

Debt management tips

Here are a couple of ways to shortcut the debt management process. These can be applied whether you’re doing your own personal debt management or working with a debt counsellor.

  • Increase income — even a small amount of extra income can go a long way. What can you do to earn a little (or a lot) extra?
  • Cut expenses — reducing expenses means freeing up more money that can be put towards managing debts, or it can ease one’s reliance on debt.
  • Debt consolidation — combine different debts. Debt counsellors or debt consolidation loans can help.

 

Basic, right? We know. But doing any one of these effectively can have an enormous impact on your timeline. It could speed the process up by months or even years.

So, give the list some thought. What can you do?

 

Final thoughts

There you have it. A way to improve how you utilise your debt. Managing debts early on can prevent disaster in the future. 

What if disaster is already on the horizon? Well, that is where the professional debt management option might come in.

Debt remains a powerful tool, and now everyone can manage theirs effectively.

Again, if you want to utilise a debt counselling service to help you to manage your debt. Then visit My Debt Hero to see if you qualify, and apply today.

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