What is the difference between debt reduction plan and debt management plan both are the same in most cases. Debt management plan for most is a professional counseling person working to help reduce debt. It not always the best way to go as fees are paid. Instead I think a debt management plan is for those whose do not have a debt problem but looking forward before taking out loans to be sure the payment can be made. Debt reduction plan is the process to take to reduce debt the best way.
https://www.consumerfinance.gov/about-us/blog/how-reduce-your-debt/ By Courtney-Rose Dantus
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Hello, I'm your host, Mr. Chuck, I a retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence determination. Debt Management Plan, what's the difference between debt reduction plan and debt management plan? Both are the same. In most cases, that management plan for most is a professional counseling person working to help reduce debt, it's not always the best way to go as fees are paid. And instead, I think a debt management plan should be for those who do not have a debt problem. But looking forward before taking out loans to be sure the payments can be made. And the same with using credit cards. They're looking forward to see if they have the money to pay the credit card when it comes Do you got to treat your credit cards like cash debt reduction plan is the process to take to reduce that the best way. I'm going to give you my debt reduction plan a little bit later on. But at first, we need to understand what a debt management plan really is and what it can do for you. And if do you need it or not? I got to debt.org management plans. What's a debt management plan? How can it help I got links in my show notes for two articles. And if you also would like to contact me, I have my contact information in my show notes. And just send me a note by email and I'd be more than glad to respond. After that. Okay is back to the article. A debt management plan as a way to pay off high interest unsecured debt, mostly credit cards without having to take out a bank loan. Debt Management Plans reduce the interest rate on credit cards to around a percent and make monthly payments affordable, so consumers can pay off debt and three to five years. The plans are offered by nonprofit credit counseling agencies who do a detailed analysis of your income and expenses to create a household budget that includes a fixed monthly payment tailored to what you can afford the plan as presented it to credit card companies who must approve the plan. Those who enroll make monthly deposits with a credit counseling organization, which uses that money to pay the debt according to a predetermined payment schedule developed by the counselor and your creditors, your monthly payment is tailored to what you can afford. Once approved, the debt management plan simplifies the payment process for consumers who use three to four credit cards with three to four deadlines, and three to four minimum payments to remember each month. One payment to one source once a month and no loan is how a debt management plan makes managing your money easier. I'm gonna pick that apart. That's what debt.org says because they're trying to get you as a customer. But let's start out first, the credit card companies do not have to agree to a plan, they do not have to reduce the interest rate to around 8%. If they refuse to do that, he might have say four credit cards maybe to agree with the plan and to him though. So you gotta have to in the plans, you still gonna have three payments, you got one to the loan for the counselor, and the two credit cards are not part of the plan. Okay, that's the first thing that's wrong with this particular definition. All also is a professional counseling agency, whether it's for profit or nonprofit, they're going to charge you a fee. That's why it takes three to five years to get out that instead of two to four years because they got to take their fees out there going to do that first. And if you can't keep track of three to four credit cards, how do you keep track of your mortgage payment, your car loans and everything else you're paying for? And all your utilities And how will you come up? With this detailed analysis of your income and expenses? You'd have to tell them how you're going to tell them. If you're not tracking your income and expenses. If you don't already have a budget of some sort set up? How are you going to tell them, so you still have to do all the same stuff. That's my point. My other article is how to reduce your debt. And it's a good one because it explains the high interest rate method or the Avalanche Method and explains the snowball method. I'm not going to go into that too much detail at this time. Now, what is my debt reduction plan? If it's a do it yourself plan, a debt reduction plan is something you do on your own, you have to be tracking all your income and expenses. If you have a counselor doing the budget for you, you still have to give them the information. So you got to still do that. The more accurate your are on your tracking, the better the budget can be, the better the closer it is, the easier it's gonna be for you. So if the only thing you got to do is have a tracking app that's gonna cost you less than $10 a month, they're out there, you can find them, find whatever you like and use it, I use a condom, Count about.com, it's $9.95 a year, cheap. I use a spreadsheet that already haves and cost me nothing. I paid off all my debt, and three years, eight months. And that definition was saying three to four credit cards in three to five years. So that's how much fee Are they really charging you. Apparently, a significant amount. A debt reduction plan is the process to reduce debt, the best way. And this is how I did it. This is my debt reduction plan. One quit using credit, credit using all your credit cards, quit borrow money to pay your monthly bills, period, quit borrow money, period, you have a debt problem, you have too much debt, you probably can't borrow money, if you still are, you're probably on the verge of not being able to in the future. So stop now, to make the minimum payment on all your debt, he hear people saying you're not gonna get your credit cards paid off if you're making the minimum payment. And that is very true. But for now, there's a reason you need to make the minimum payment and no more, because you got to do number three, create yourself an emergency fund, it's nothing but a savings account, you set up and you get it build up to a minimum of $1,000. Which means the balance never goes below$1,000. Unless you have some type of emergency, an emergency is it something that happens that's unexpected, that's not even a normal monthly expense, such as an injury, such as a car repair or any repair. You need the hair a minimum of 1000 and why? So you can continue. Step one, quit using credit if you don't have a emergency fund, and if something happened, that was an emergency fund, what are you gonna do, you're gonna use credit to pay for it, and you're not making any progress. Once you have the emergency fund a minimum amount establish you keep building up until you have at least $3,000 above that which means you have $4,000 And why are we going so high one because as long as it's in your savings account, it's part of your emergency fund as something would happen and it's gonna cost you more than $1,000 You have the money available to pay for it. So step number one is continued. You're not using credit. Once you know that all the bills are paid up. Once you know I have a minimum of $4,000 in there you so you have 3000 over your emergency fund. Once you know and everything's looking good as your budget is under control, you have plenty of money in your savings in your checking account to pay for groceries, gasoline, small little items that may pop up. Your monthly bills are on a paid up for now. He take that extra$3,000 and you apply it to one of your debt which that is up to you? Do you pay off your lowest balance first using the snowball credit. But if you're somebody who needs to have achievements to make and to make it feel like you're making a progress, then yes, but my plan is you pay off the very first time you pay off your lowest balance first, or least pay it down. And then the next time, you may be able to pay it off. Once you have your credit card paid off, you do not cancel it, you allow it to stay open. And you may be you chuck put a small charge on it every two or three months to keep it active, so they don't close it for you. Now, there's a warning, if you have really bad credit, and you have a lot of credit cards up to the max, they may cancel it for you, that's not your choice. Our goal here is to leave it open. Because sometime in the future, hopefully in the next six months, you'll get an offer from that credit card or the balances zero. Or you can transfer some balances for a fee of 5%. And have zero interest for 12 months to 18 months. And you want to take advantage of that, then you want to take your higher rate, interest credit card, transfer some of that over not 100%. This enough over that, you know you can have paid off the zero within that time period. So you don't get charged any interest. If you don't think you can pay off a large amount in a short period of time, then put over a small amount, work on it, get it paid down to zero and then transfer some Moreover, that's going to cut your interest that you're paying on that high card because you're gonna start having a lower and lower balance. Then once you keep doing the process over and over, you're not using credit, you're making the minimum payments every month, you're building up your savings account, you get the extra in there, everything's looking good. Now you apply it to your highest interest rate next to second card you're gonna pay off. And then from then on, you pay off your highest interest rates. First, work down through those may pay off some of your car loans, pay off your line of credit against your home. And then eventually your first mortgage should be the last thing you pay off. Because it's probably has the longest term insights as far as yours. And it's probably got the lowest rate of interest. So it'd be the last thing you pay off, you may not you want to pay it off the painting on if you have a 3% or less interest rate. And it's a 15 year loan, and you can make the payments fairly easy because there's a small payment, just keep on paying it. You don't necessarily have to pay it off, you can build up your savings and other accounts before you pay it off. But that's a future episode. So that's in the net, sell a debt reduction plan, which is the process to reduce debt to the best way. Okay, now let's talk about debt management plan or what I think that manage plant management plan should be. Remember I said instead, instead of using a professional counselor, because that's what a debt management plan is, you're going to a professional, you're giving them all the information, and they're doing some of the work for you. And then they're going to tell you what to do. Why pay their fees, when you can do it yourself. Stick to it, give it a try. To at least six months is gonna be tough. The hardest thing about starting reducing your debt is quit using credit as quit using credit cards and quit borrowing money. You got to start paying for thing with the money that you earn every month. He got live bought based on how much you make, and you have a lot of debt. And a lot of debt is consuming a lot of your income. You gotta you gotta try to get it under control, it's not gonna get any better, it's only gonna get worse. So let's assume you did the debt reduction plan. You got all your credit cards paid off. You're looking at paying off maybe a car loan or to maybe your line of credit. But you know, life is going on. And maybe you need a new car. Maybe you need you know, the finance something in the near future. So what is that? Well, that's where the debt management plan comes in. For those who have your debt under control, and you you have a debt reduction plan, maybe still on course, or maybe you have no debt at all. No People don't have any debt, there's a reason they have no debt is because they don't stick their neck out there. They're somewhat conservative on their finances. So what do you need to do for a debt management plan? If you're thinking about replacing your automobile? For me, I would not buy a new car. I always buy used cars, one because the lot less pricey. And two, I can do a bigger downpayment and get the loan paid off faster, because I borrowed less than I can pay more than what the monthly payment would be. But before I do all that, one, I got to determine Do I really need it? And when do I need it? Why do I need it? Well, my car is kind of getting wore out, it's got 300,000 miles on it, it breaks down every once in a while. And within the next six months, I'm going to need a new set of tires and Winter's coming. So I'll probably need a new battery. So I'm going to be spending some money on it. So before that, well, maybe I just couldn't get rid of it. buy myself a good used car. How much can I afford? Now maybe I can afford $1,500 a month, but I don't want that. I want to keep the payment under control. I don't want to be paying 1500 hours a month for a vehicle because that's way too much. Again, you need to know your budget, you need to know your gross income. And your automobile loan should not be more than 10 to 15% of your income. When is that? And then try to keep it a little bit under that. Because that will make your life more comfortable. You're not going to be stressed out on how am I going to pay for whatever, how I'm going to make my car payment? Oh, I got real estate taxes go? How am I going to make my payment on my real estate taxes? Oh, I have this coming up? How am I going to pay for that? If you keep your spending under control, and you're not got these big huge payments and month in and month out for five or seven years in your life have gonna be more manageable? And that's what you do when you thinking about making a large purchase. Okay, what is a used car cost? How much do I need to borrow? How much do I want my payment to be? And how long as short as possible as less as possible. I could finance it for five years and get a smaller payment. But I'll pay more interest because there's a longer period of time. Or I can put more down financing for three years and pay about the same. And the same thing goes with using credit cards before you go out and make a purchase that's greater than, let's say 200 or $300, you need to really think do you really need it. For now what I'm going through is I'm looking to upgrade my computer, I'm using a laptop, but I want to upgrade it to a desktop. But I really don't want a desktop because it takes up too much space. So they are now days they have these mini computers. And they're not all that expensive because you just get the computer. And it's a little box five inches by four inches by about two inches thick or less. So they're really small, you can just mount them on the back of your monitor. And there's same as having a desktop computer, the processor and you can play games on him you can you have stories and RAM and they're fast and and they're about anywhere from five to$1,000 depending on what you get and what you need. And I've been struggling with this. I really want one, I found a good deal on one. But I just retired. And I got some my real estate taxes. So do the end of the month. So in my my credit card is going to be due the second or third of next month. And I've already got the credit card as high as I want it to go because I don't want to overcharge on it because my credit score will go down. I'm always thinking about these things. So I need to put it off. How long well, maybe a month, 30 days. And then well do I really need it. I can probably get by for another year or two. Are they gonna get cheaper? They probably will but they're also gonna get better, which is gonna probably cost the same. I'm not gonna buy a year old technology when I can get a newer one. That's, you know, bigger, faster, more reliable, whatever the case would be So that's what I'm doing, I'm struggling now, I really don't want to charge it on my credit card, I don't have the cash in my checking account to pay for it. I got an A bunch of other bills coming up, they have to pay due first. So I'm just putting it off. That's called a debt management plan. I'm looking forward, I'm looking at my situation. I'm looking at how much money I have my checking account, how much money I have my savings account? What bills are coming up? How much are those savings going to have to pay for those bills? When's that credit card payment due? How much is it now? How much would it be if I charge this? Can I afford to pay it, because I treat a credit card like cash, it's got to be paid off every month. It is cash, nothing else. So that's the difference. And debt reduction plan is a plan you have in place to help you reduce your debt. A debt management plan is a plan you have in place to help you control your debt. So you don't get back and to be in and debt trouble. Again. I hope that makes sense to you. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt. And even tells you how much and when to transfer money into your savings account. And how much and when to transfer money to your debt, and which debts to pay off in order. First, it's not cheap. It's a one time payment. But it will definitely be an investment, something in yourself and an investment in your personal financial life. If you're interested, send me an email at reduce debt increase email@example.com. And I'll send you the information about this online software that worked great for me. And debt management plan is using a counselor a professional to help you manage your debt, they may or may not be able to reduce the interest on your credit cards, through a negotiation with a credit card companies get a look at it from a credit card company. They want their money. So if they have to reduce their interest, maybe they will put what fees are you paying into those counselors in for how long? Are you paying the fees? Is that a monthly fee? Is a fee based on how much debt you're they're reducing? How are you paying fees? How are they charging fees, and how's that gonna affect your paying off your debt, it's generally speaking is going to take you longer to pay off your debt. Using a professional counselor, you still have to give them the correct information. So you still have to track track your spending, the more accurate you're are on tracking your spending, the better the plan can be. The closer the plan can be to maximize your income that you have the expenses that you come up with month to month, and how much money you can put to them to pay off that debt. In the meantime, you can't continue using credit. If you go out and open up a new credit card and start charging on it. What good is it done? You're still under the same rules on my debt reduction plan. You gotta quit using credit across the board. Because the purpose of using this counselor is so you don't have to get a bank loan and what kind of bank loan we're talking about most likely a consolidation loan and why are you going to the counselor? It's really there because you cannot get a consolidation loan or two you want to file bankruptcy. And the bankruptcy court makes you go to a counselor to Why do all that? Do it yourself. Save the fees, get your debt paid off faster, and you'd be much better off and you'd be happy you did so