Stacy Livingstone-Hoyte, AFC®, is an experienced Financial Counselor who has worked extensively with U.S. Armed Forces members and families. She is a long-time volunteer blogger for Navynavstress.com and previously served at the Fleet and Family Support Center, Millington, Tenn. as a financial counselor. Prior to government service, she worked as a financial services representative for several brokerage and insurance firms. As a military spouse, Ms. Livingstone-Hoyte knows firsthand of the financial challenges and opportunities that face military families across the globe. To that end, she embraces a steadfast belief that financial success can be simple, just not easy.
While Part 1 of this two-part series discussed ways to increase awareness of your spending habits and tips to be better stewards of your money in the present and future, Part 2 will focus on tips and resources to resolve past debts.
Anyone burdened with debt is likely to hear the terms debt management plan, debt settlement and debt consolidation. While each option provides unique advantages, there could be hidden fees and disadvantages, so you should always consider the assistance of a non-profit credit counselor or military financial counselor who will help you navigate the maze of alternatives.
Debt Management Plans. Through the assistance of a third-party, such as a non-profit credit counseling agency, a debt management plan utilizes a monthly structured payoff that creditors you owe have already accepted. As part of the terms of a debt management plan, the accounts included are closed, interest rates are usually reduced, your credit ratings are typically preserved, and most importantly, you can avoid bankruptcy.
Debt Settlement Plans. Unlike debt management plans, debt settlement plans involve a final, reduced payoff amount from each creditor that has been negotiated on your behalf by either yourself or a third party, such as a non-profit credit counseling agency. Although the amount you are required to pay back is reduced, a serious tradeoff of a debt settlement plan is how it will affect your credit report, as creditors are required to note such accounts as “settled” versus “paid in full.” What this means for you is that when you apply for credit in the future, whether it’s a vehicle, credit card or mortgage, the company that pulls your credit report will see that you were unable to satisfy a debt obligation. In addition, when you file your annual taxes, you may owe taxes on settled debt amount.
Debt Consolidation. Debt consolidation refers to obtaining one loan to pay off the existing balance of your collective debts. One advantage of this is that you make one single payment each month to one creditor; however, one disadvantage is that the interest rates can be higher than your existing creditors. As with debt management plans and debt settlement plans, it is always best to consult a non-profit credit counseling agency to determine if this is the best option for you.
Debt management can be extremely stressful, but having a solid financial plan will reduce this burden and set you up for greater financial successes in your future. For assistance locating a non-profit credit counselor, visit www.nfcc.org or visit your local Fleet and Family Support Center.