Financial health management
Financial health management (FHM) is a debt relief method designed to help consumers handle their debt issues in both the short and long term.
In the short term, an FHM company helps an indebted consumer leave debt by using an established debt relief method. In the long-term, an FHM company provides resources to help its clients change their financial behavior and maintain their “financial health” in the years after they leave debt.
To reach this goal, a company provides resources, usually online, that can help both past and present clients better manage their finances. These resources might include savings tips, online budgeting tools or educational articles about credit and debt. These items are offered to encourage positive financial habits and help people avoid returning to debt in the future.
History
Financial health management evolved as part of the growing number of debt relief options that gained ground after federal bankruptcy laws were changed in 2005, making it more difficult for consumers to claim bankruptcy protection. Combined with a contemporaneous rise in debt levels, these trends led to the spread and development of other debt relief options, such as credit counseling, debt consolidation, and debt settlement.[1]
While these debt relief options were used by consumers to handle their immediate debt problems, a hole still existed once that debt was resolved. Debtors could fall back into the same patterns of behavior that placed them in debt in the first place. Financial health management originated in 2009 as a way to help consumer change these patterns and thereby stop falling back into debt.
How it works
Financial health management first aims to help people get out of immediate debt with an established debt relief method. In the case of FHM using debt settlement, a client makes monthly savings to an account until the balance rises high enough to reach a settlement with a creditor. The financial health management company would then negotiate a settlement deal with the creditor. The debt is then paid off from the saved funds.[2]
As a person goes through and finishes this process, he or she has access to resources provided by the company that can help them stay out of debt in the future. These resources, often online, include financial calculators, savings tips, and educational articles about credit and debt. Other articles can include topics such as psychology or health as it pertains to people going through the stress of debt. The client uses these resources to develop better spending and financial habits.
Drawbacks
A financial health management company uses established debt relief methods to handle each of its clients’ debt, such as debt consolidation, debt settlement, and credit counseling. Each form of debt relief has its own possible setbacks. In the case of debt settlement, enrollment in a program does not stop creditors from taking legal action. In addition, a completed debt settlement program can cause a ding on a credit history.[3]