When people talk about how to manage debts they often just mean how can they generally deal with it or get rid of it. The term debt management, however, has a very particular meaning, and is used to refer to a specific process for tackling consumer debt. This process also happens to be the most common and successful way to deal with debt, so is likely to be the right answer too for those people who are asking that general question about how best to manage debts.

Debt management is a process offered by specialist debt management companies. These operate widely in the US, UK and many other countries. The service they offer is one of providing a debt management plan (DMP), which consolidates all your unsecured debts into a single payment that you make to the company.

The way this works is that the company talk to all your creditors and come up with new arrangements for paying back your debts. The process involves a renegotiation of your repayment terms so that you end up paying less each month. This usually includes changes to the amount of interest you pay and often means getting agreement to write off or reduce any extra charges or penalties.

At the end of this process they have new arrangements for repaying each of your debts, and they take a single payment from you and share it out among all your creditors. The major advantages to you are a reduced monthly outgoing, the simplicity of a single payment and not having to deal with your creditors at all, who have to go through the debt management company.

You can only manage debts in this way if they are of the unsecured type. Most consumer debt fits into this category, which includes personal loans, credit and store cards, bank loans and overdrafts and other household bills. The things that cannot be included in a debt management plan are secured debts, which are usually bound to valuable assets. The most obvious example of a secured debt is your mortgage loan.

The other main requirements for being able to manage your debts through such a plan are that you have a steady job that gives you an income sufficient to make a reasonable monthly payment towards your debts. If you find yourself in the situation where you have very little left after covering your fixed monthly outgoings, you may not be eligible for a debt management plan, but all is not lost. For people in particularly desperate circumstances, the more appropriate option may be debt settlement negotiation.

Debt settlement is a completely different approach to debt management. Instead of finding ways to pay back the full debt, this process is all about getting agreement to write off as much of the debt as possible. When people are in very serious debt, they may be considering bankruptcy as one of the only other possible alternatives. If they declare bankruptcy the creditor is unlikely to get any of the debt that is owed, so they may agree to a much reduced payment in order to get something rather than nothing.

If you are resident in the UK and are concerned about how to manage debts that are particularly serious, you will not find debt settlement being offered as a service. This is because there is another option unique to the UK, which is an IVA (an Individual Voluntary Agreement). These are legally binding agreements that allow you to make a regular contribution towards your debts, and your outstanding debts are written off at the end of the agreement.

Having a good understanding of the options available helps you to choose how best to manage your debts. If you are going to seek help from a debt management or debt settlement company, you are advised to use recommended companies so that you only approach those known to be dependable and ethical. Any company you approach should be very well established and be able to show a good record of success in terms of having lifted many other people out of debt. A useful way to ensure you get good value is to apply to at least three companies so that you can assess them against each other.

Read reviews and recommendations for reputable debt management companies in the US and UK. K D Garrow has worked as a senior manager with significant financial responsibility for the last twenty years. His Debt Help website offers free, unbiased advice on a range of debt related issues, including debt settlement, consolidation loans, IVAs, payday loans, bankruptcy and budgeting.

Dublin, Nov. 6 — For a country that ranks 11 in terms of its $45,000 per capita income (more than 15 times India’s) the credit crisis-hit Ireland is, like its November weather, a gloomy-grey picture of government mismanagement and banker-developer greed. The victims: average people – laid-off workers, scrambling small businessmen, conservative shoppers. The 43-year-old Peter O’Hara (name changed) is the dark face of everything that has gone wrong in this island nation. The O’Hara story: I was a manager in a design company. In our company 60 per cent of the 300 workers are unemployed. The large profits the firm was making turned to no profits and then to losses. The sector was a major employer and we were building 100,000 homes a year. The government continued giving tax breaks to developers who got almost free money from banks. Ireland’s construction industry, which is experiencing an unprecedented contraction in output following an unprecedented speculative surge that peaked in early-2007, is a case study victim of the global credit crisis. And O’Hara, who lost his job last month, is bearing the brunt. “The largest decline in employment was recorded in the construction sector where the numbers employed fell by 86,000 (-35.6 per cent) over the year,” noted a September 2009 report by the Central Statistical Office (CSO). O’Hara is one of 35,200 people who joined the ranks of the 264,000 unemployed women and men in the country. But the biggest layoffs have hit the young (age group: 20-24 years) workforce – almost one in four are unemployed compared to one in seven for the age group 25-34 and one in 18 for the 60-plus. The O’Hara story: The people with the biggest problem are those in the 25-35 age group. They have mortgages at high prices

and children in school. They are the ones who are leaving the country. I know about 100 people who have left the country. It is difficult for me to leave. I have a mortgage. My wife has a business – it is down 50 per cent. The CSO noted that the number of emigrants from (Ireland) in the year to April 2009 is estimated to have increased by over 40 per cent from 45,300 to 65,100. Its September report on ‘Population and Migration Estimates’ said there was a net outward migration of 7,800 for the first time since 1995. But emigration is merely the tip of a depressing iceberg. The heavier mass comprises suicides – 106 people took their lives in January-March 2009 – a 43 per cent rise or more than one suicide a day. Paul Kelly, founder of the non-profit Console that works with families bereaved through suicides was quoted as saying that callers using their helpline “were distressed over the economic downturn.” On the streets, however, reactions are mixed. Brannwen Kavanagh, 18, a student of art, though not depressed was “not optimistic”. Playing her guitar and singing on Dublin’s upmarket Grafton Street, she had been looking for a part-time for two months. “But I have not been able to get any,” she said. But she shrugged off pessimism: “Generally, it is difficult for artists to make money.” Richard Farrell, 24, a sound engineer who sings for a living in restaurants and bars, was singing on the street too. He was to begin living on his own the next day but said he would go on social welfare only if he didn’t get work. I met, heard and spoke to three other young musicians on Grafton Street. The last – Daithi, the flautist of a fine Irish folk rock band called Mutefish Muteation – said the credit crisis did not affect the band. “It’s the weather.” The O’Hara story: I am now thinking of starting my own business. Everybody believes this to be the way out. Architect firms are now looking to outsource work to India, China and Eastern Europe. They design a hospital here but get their plans drawn

up in India. Maybe I’ll do that. Entrepreneurship has become a survival toolkit that many older workers are being forced to take up. Bags in the City is a three-week-old shop run by Leo Lalor, 54, and his two children in an upscale shopping centre, is one such. Laid-off as a general manager from a similar operation that went into liquidation in June, he said he was taking a calculated risk. “I’m familiar with the location, the unit, the business and the trade,” he said in the shop with no customers. “I am optimistic.” Home to “Dublin’s most upper-class shopping area”, and the “nicest-looking street in the city”, Grafton has few shoppers in the mornings or in the afternoons; the evening sees a small trickle of people returning from offices; the nights are haunted. Even a relatively smaller shopping centre at Lokhandwala in Mumbai or Select City Walk in Saket has more shoppers. Customer footfalls have been washed on the sands of the financial tsunami. “Sales are down by 30 per cent,” said Naomi Leeson, 49, who has been running a men’s clothing and shoes shop Raider for the past two decades. “This is the worst year I’ve ever seen. Our loyal customers come once in six months instead of three and buy one item instead of two.” In its October 16, 2009 report, CSO noted that retail sales have fallen by 9 per cent. While motor trades are down by 29.1 per cent, household equipment sales have contracted by 11.4 per cent. The saving grace: pharmaceuticals, medical and cosmetic sales, which are up 3.3 per cent. If sales have eroded on one side, rentals are squeezing businesses on the other. “Rental rates have not come down,” said Jerry Graham, 50, who has been running a men’s clothing shop Bertoni for 27 years. “Property prices are down by 25-40 per cent but not rentals. So, what you see on almost every street of Dublin are “To Let” signs but no respite in rentals. Credit has almost dried up and NAMA or the National Asset Management Agency Bill 2009 that proposes to takeover the bad assets of banks so that the latter can begin lending is all set to be mired in controversy, though political observers say the bill will pass, “with a thin majority”. A report this week by Fitch Ratings cut the country’s sovereign credit rating by two notches to AA- from AA+. “Gross government debt including NAMA liabilities will rise to over 110 per cent of GDP by the end of 2010,” the report said. It also forecast that property prices will be down 45 per cent from their 2006 peaks. The rating cuts follow an Organisation for Economic Cooperation and Development report, released on the same day, that revealed the dangerous state of Ireland’s public finances. Titled Economic Survey of Ireland 2009, it forecast a GDP contraction of 7.5 per cent in 2009 and 2.4 per cent in 2010, with fiscal deficit rising to 12.2 per cent of GDP in 2009 and 11.3 per cent the next year. The O’Hara story: I think our government created the problem. It spent money foolishly by giving tax breakers to developers and fuelling an artificial boom. They did not save money for hard times like these. In its October 2009 report, the government’s National Economic and Social Development Office said there are five dimensions to Ireland’s crisis -a credit and banking crisis, a fiscal crisis, an economic crisis of competitiveness and job losses, a social crisis of unemployment and income loss, and a “reputational crisis”. The latter, when translated into numbers, means the country in the short term will have to pay higher yields on its government bonds, “as bond markets demand higher spreads to hold what are seen as riskier assets”. People are angry but there is nobody to listen to them. Bankers have disappeared from public discourse and when I tried to speak to some of them, they politely declined to speak on the issue, and pointed me to other bankers who declined as well. By their conspicuous absence, it seems all property developers have emigrated from Ireland. Politicians are reworking the country’s finances and attempting to salvage their reputation, now in shreds. The exploits of all three – politicians, bankers and developers – are being enshrined in bookshops, and at least five new books on them have turned into high-priced bestsellers.

They are right. And, if the prams of curious and hopeful bright-eyed infants dotting the streets and malls are any indication, it is the indomitable will of the Irish that will pull the country out of the morass that the Celtic Tiger got caged in two years ago.

Hindustan Times

Technorati Tags: credit debt management

credit debt management