A debt management plan is a structured repayment plan set up by a designated third party, assisting a debtor with the repayment of his or her debt. The aim of debt management is to help clear the debts at a reduced level over a fixed period of time to help the debtor make a fresh start with their finances.
A debt management plan is a method utilized by a person to cover his or her debt. It is also done by a third party between the person and his or her creditor. The creditor is the company wherein the person owed money. This is done after all the payments for the necessary things such as utility bills, mortgage and so on have been settled. The money left will then equally be distributed to your creditor every month.
Debt Management Company
A debt management company can help the average consumer take control of their debt problems quickly. A skilled personal debt assessor can reduce or eliminate current levels of debt whilst helping the consumer to understand the factors that led to the debt and how to avoid these factors in the years to come. A good debt counselor can help a consumer, create a realistic budget plan to carry them forward in the future once the current debt has been eliminated. Making a monthly budget and keeping to it may well be the most essential financial decision anyone can make, but few people take the time to make a budget. By teaching this important skill, a good debt management company provides their clients with expertise to remain debt free.
How Does Debt Management Work?
Firstly, your debt advisor will offer advice on ways that you could save money by looking at the way you budget. Your debt adviser will then help you to carry out an assessment of your financial situation and debts by asking you a series of questions. By asking these questions they get a more accurate picture of your finances. It is essential that you are truly honest when they are going through your finances with you to enable the debt advisor to give you the specific help you need. This information is used to calculate how much you can comfortably afford to pay each month out of your surplus income.
Once this amount has been agreed with you, your creditors will then be approached and asked to cease all charges and negotiate a different repayment schedule with them, which will be easier to manage every month. In most cases, creditors are happy to agree to the plans, because they know from experience, that such plans are realistic and sustainable.
You then make a single monthly payment, all of which is distributed to your creditors on your behalf. It is important that the payment is made into your debt management plan every month. Throughout the duration of your plan, you will be able to speak with an experienced debt advisor whom you should contact if you experience any problems whilst the arrangement is in place.
Your debt management plan will be reviewed at regular intervals to ensure that it still meets your circumstances. If your financial situation changes, the debt management company have the flexibility to be able to renegotiate payments on your behalf.
Purpose of Debt Management Plans
DMPs are only possible for unsecured debts. Government and private financial institutions that offer DMPs will serve as the third party who will negotiate the new terms of loan repayments between the debtor and the lending companies.
It is the job of the DMP institutions to study the overall financial situation of the debtor. Based on his income, expenditures, outstanding loans, and maybe several other factors, the DMP institution will study the most suitable and possible payment terms for the debtor.
What You Can Expect from Debt Management Plans?
Debtors get the luxury of making one payment per month for all pending loans. In line with its main purpose of providing a feasible solution for debtors experiencing financial difficulty, the debtor will now be paying less per month for an interest rate. This is the result of averaging the interest rates of multiple loans.
On the other hand, the terms of the loan will be extended for as long as 30 to 60 months. Being under a debt management program will also reflect on your credit record, which might affect your eligibility to apply for other credit in the future. However, for as long as you are religious and consistent in paying the new monthly dues arranged through a DMP, your chances of being considered for future loans will be much higher.
This money management service does not come very cheap, nor is it a requirement for indebted individuals. However, debt management plans remain to be wise and effective solutions to debt problems.
How does Debt Management Plans Work?
Debt Management Plans work to lower the total due balance and consolidate all debts into one monthly payment, which is affordable. Those who have the financial ability to make monthly payments cannot use this type of an arrangement. Usually creditors supervise these programs. The plan is most beneficial for those who cannot make payments each month because of late fees or higher rates of interest. You should consult with the debt management company to figure out which plan suits you best. The company managing the plan will negotiate on your behalf so that you get better rates of interest and terms than otherwise. They will also end harassing calls from creditors so that you can concentrate on finding means of paying the debts and not worry about threats.
Advantages of a Debt Management Plan
- Reduction in Your Debt Payments: A debt management agency can deal with the lenders to reduce the amount you have to pay monthly. This can work for unsecured debts from credit cards or personal loans.
- Reduction or Elimination of Your Interests: Instead of interests increasing every month, you will have enough to start reducing your debts.
- Reduction of Late Fees: Over the limit fees and membership costs. Some creditors can give these benefits, but they are not granted, in some cases these fees can even be eliminated.
- One Single Payment Per Month: All your payments will be joined together in one single account; by doing this is easier to avoid late payments or crossing the limit.
- Improve in Your Credit Score and Credit History: This will happen over time, when you start paying your debts instead of escaping from them; lenders will see you on a better perspective.
- You will have almost instant access by telephone to the Debt Managing Organization and won't have to wait around to see someone
- Some individuals like the privacy of a telephone service run by a Debt Managing Company
- You actually don't currently have to do any work in regard to your debts, for as an example, creating correspondence to creditors
- Now there is only one monthly payment to make - to the Debt Management Company - and the company distributes the money to the lenders.
- You don't have to pay a large number of different companies. As an alternative only one payment.
- If the plan is carried out efficiently all Interest costs and expenses are normally finished.
- You only pay out what you need to so that you have sufficient left for a healthy social life.
- You will no longer need to talk to your lenders in order for debt removal to take place
Tips for a Successful DMP or Debt Management Plan
- First and foremost, it is but logical to only accept a debt elimination plan that you can afford to pay. It is not recommended to get those plans that have high monthly rates of payment since it will still become a burden on your part, only adding to your financial problems instead of solving these problems.
- Secondly, it is essential to transact every debt reduction plan in writing. Always make it a point to have everything documented in black and white. Having a debt management contract is one of the essentials in order to get started in managing your debts.
- Thirdly, it is also important to get your debt management plan or DMP approved by your creditors. This is in order to avoid any conflicts of interest on their part. Once you undergo any debt management scheme or plan always make it a point to inform your creditors formally in writing about your desire to settle your debts with them through such scheme or plan.
- Fourthly, always make regular payments. This is in order to avoid paying any late fees or over the limit fees that will greatly affect your credit standing and financial status.
- Fifthly, it is very important to ensure that the fees that you will be paying are not high. This is not an ignored fact, since if the fees will still be higher then it will necessarily overcome your point of receiving a debt management plan. Do your research in order to find out the fees that will be charged to you by your debt management company. These fees include application fees, enrollment fees, consultation fees and other similar fees.