The objective of a debt management plan is to make your repayments more affordable. Rather than making lots of small payments to multiple creditors, you’ll make the one payment to an intermediary. The concept is similar way to a debt consolidation loan, but you don’t need to borrow money. This is an important distinguishing factor, especially if you’ve got a bad credit history. Missed and late payments won’t affect your chances of getting creditor approval.
Understanding Your Debt Management Plan
You agree to make a monthly contribution to a debt management company. After deducting business and administrative expenses, the remainder will be divided amongst your creditors on a pro rata basis. Although they aren’t under any legal obligation, most creditors are willing to put a freeze on further interest and charges. This enables you to clear your debts far more quickly.
Establishing your Debt-Free Plan
You’ll be expected to put together a statement documenting your income and expenditure. This enables your account manager to ascertain whether it’s possible to achieve sufficient savings to meet your obligations. You should also provide a comprehensive list of your creditors, addresses, account numbers and the amount that you owe. Bring any creditor correspondence along with you.
You’ll be sent an agreement, and this enables your intermediary to engage in a discussion with your creditors. Provided that the agreement is deemed to be in the best interests of all concerned, you have your consumer debt relief program. You’ll then make a payment that you can afford rather than paying the amount specified in the credit agreement. Payment will typically be collected by direct debit each month.
Advantages of a Debt Management Plan
– You won’t need to liaise with your creditors. If you creditor makes contact with you, they can be referred to your account manager or advisor.
– You may not need to pay any further interest and charges. If this is the case, it’ll save you thousands of dollars.
– You’ll make a single, affordable repayment to your creditors.
– You’ll free-up additional money that can be used to pay your priority debts, such as your mortgage and auto loans.
Disadvantages of a Debt Management Plan
– You’ll using the services of a professional company and those services aren’t free. About 15% of each payment will be taken in charges.
– Interest and charges aren’t always frozen. The reduced payment could prolong the life of your debts.
– The agreement is voluntary and isn’t legally binding on either party.
– You’ll normally need a minimum of three creditors.
How to Deal with Debt
If you’ve fallen behind with your monthly repayments, you need to take steps to get your finances back under control. If you have a shortfall, a debt management program will help you to balance the books. Don’t bury your head in the sand because your money worries won’t go away on their own. It’s take to seek professional help.
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