Debt Management Program

Debt Management Program

What Kind of Debt Management Program Do You Need?

That depends on your situation. If Ditching Debt is your goal, there are a lot of ways to do it. The one that's best for you depends on your resources. Here's how "Joe" found out which debt management program was best for him...

It all started when Joe tried to open yet another store credit card at Express for Men. His application was declined. Obviously, Joe was quite embarrassed, not to mention surprised. He knew he had a lot of credit cards, but he always paid his minimum amounts due on time, so he wasn't worried. Of course, he had no idea how far in debt he was, either, because he never looked at his statements. Within a week, he received a letter in the mail from Express for Men explaining that he was denied a card because he was "overextended," meaning he had too much available credit extended to him already. Joe knew that he could get a copy of his credit report if he was turned down for credit, so he did. Everything was intact, but he didn't really realize how far in debt he was. Thee whole experience was an eye-opener for him, so he went online to try to see if there was anything he could do about it. He found a debt management company he was interested in, so he met with one of the counselors to go over his options.

The counselor told Joe there were several debt management programs available, but she would have to go over his financial situation with him to determine which debt management program was best for him. So they did. One thing Joe had going for him was that he bought a house a couple of years ago. This gave him at least two options: a debt consolidation mortgage or a debt consolidation loan. He also had the option of a basic debt consolidation program, which is debt management program for everyone, regardless of their resources. The counselor advised Joe that his best option was a debt consolidation mortgage. She said that using your house as collateral for a debt consolidation loan wasn't wise because if he would default on the loan, he could lose his house, and that's not a fair trade for the amount of the loan he needed. "For a debt consolidation loan, it's better to have a car or something that's worth about the same amount you borrow," she explained. Of course, if he missed payments on a debt consolidation mortgage, the same thing could happen, but with this debt management program, he's actually adding the amount he borrows to his mortgage. So his $180,000 mortgage would then become a $188,000 mortgage (in Joe's case) and if he defaulted, the mortgage company would simply sell his house which, because of appreciation was probably now worth about that much. However, with a debt consolidation mortgage, his mortgage payment wouldn't go up by much, and his average interest rate he was paying on all his credit cards would be reduced to that of his mortgage. And some of that interest could be deducted on his taxes.

"If you're confident you won't miss any of your mortgage payments, this is truly the best and cheapest way for you to go," the debt consolidation counselor explained. "Of course, if you don't want to put your house at risk at all, a basic debt consolidation program is a good debt management program too. This combines your outstanding credit card debts into one, gives them one low interest rate and gets you out of debt in five years."

In the end Joe went with the debt consolidation mortgage, and he lived happily ever after.

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