7 Important Debt Management Terms

If you are overwhelmed by financial problems, you may not have any idea where to begin looking for a solution. ...

Here is a list of seven important terms you need to know when dealing with the debt management process that can help you regain financial freedom:

• Wage Garnishment

  Through a judgment issued through the courts, a debtor can legally take a portion of your paycheck from your place of employment. Only a certain percentage can be taken out of each paycheck. Wage garnishment laws differ from state to state.

• Bankruptcy

  Bankruptcy is usually the final solution when debts cannot be paid as scheduled and payments have fallen too far behind to catch up within a reasonable amount of time. It is a legal practice in which a debtor lists all of his or her debts and submits them to the court for control.

  There are two main types of bankruptcy. The first is Chapter 7 bankruptcy, which means the majority of or all of your debts are erased and cleared from the records. The second is Chapter 13, which involves a specific payment plan being set in place over a designated period of time and monitored by the court system. The amount paid to creditors is determined according to the income of the debtor.

• CCCS

  The Consumer Credit Counseling Service (CCCS) is an option for debtors in which the debtor and creditor negotiate a payment plan with reduced payments and lower interest. A lump monthly sum is paid to the CCCS, which is responsible for dividing the payments equally among the individual creditors.

• Credit Report

  Credit reports determine your credit-worthiness. Lenders use credit reports to predispose whether or not you are a financial risk to the bank or institution considering a loan for you. There are three main companies that generate credit reports: Experian, TransUnion, and Equifax.

• Creditor and Debtor

  The creditor is the individual or organization that extends credit to a debtor, allowing him or her to borrow money and pay the debt at a later date.

• Debt Consolidation

  Debt consolidation or a consolidation loan involves gathering all debts into one lump debt. The debt consolidation process can generate a larger monthly cash flow and may be eligible for a lower interest rate.

• Foreclosure

  When a homeowner is unable to make monthly payments on a delinquent mortgage, the lender is allowed to foreclose, or seize the property. The homeowner can be evicted and the property sold with a lower interest rate and below market value of the home.

Professional financial advice is available from debt management companies and organizations that will set up a satisfactory payment plan between you and your creditor. By negotiating a debt consolidation plan to pay off the balance, most debts can be easily resolved.