Solving Your Debt Problem With a Solid Debt Management Plan

Solving Your Debt Problem With a Solid Debt Management Plan

Is your debt profile rising exponentially and you can’t seem to handle your loan repayment efficiently? Are you feeling uneasy about your piling debt and you just want to be free from every loan obligation? If your answer to this is yes then you need to consider using a Debt Management Plan (DMP).

Debt settlement is when a debtor is able to pay off a lower negotiated amount in one lump sum while debt management helps you negotiate a lower interest rate and work out a monthly payment plan with your creditors such that it makes things easy for you.

A Debt Management Plan is a unique plan that is specially created for a debtor to pay back his debts to the creditors in a way that is mutually agreed to by both parties. This plan is usually arranged through a debt management company or a credit counseling agency that also provides professional financial advice and budgeting services to debtors. The fun part of it is that debt management programs are usually affordable and it is common to find charity organizations and government agencies offering such services.

Basic Requirements

When opting for this program, you have to be open to discussing important areas of your income and expenses especially your monthly cashflow. Knowing how much money you have left after deducting the cost of rent, food, transportation, and utility bills, will definitely help in the planning process. Also, it is pertinent to have a good understanding of your overall debt situation. You must know the cumulative debts on all your individual credit cards, the interest rates on each of them, the minimum monthly payments, pending medical bills and other available financial commitments.

The Merits and Demerits of a Debt Management Plan

Merits:

1. A DMP typically allows you to pay a single amount monthly to your debt management company for onward distribution to your creditors. The total repayment rate will be negotiated according to your income level, giving you the opportunity to better control your finances. This method is designed to help you avoid taking another loan to settle your debt!

2. It essentially gives you peace of mind because your creditors will no longer bother you with loan repayment worries.

3. Creditors often agree to write off extra charges and interests, thus keeping your debt stable instead of increasing.

4. Being committed to your DMP means that you’ll eventually get out of your debt situation.

Demerits:

1. It is not uncommon to find creditors contacting you for immediate repayment.

2. The criteria for entering a Debt Management Plan is having leftover money every month after deducting all your necessary expenditures.

3. Mortgages and utilities are usually not covered by the DMP; only unsecured debts such as credit cards, federal student loans, home equity lines of credit, and auto loans, are covered.

Picking a Good Credit Counseling Agency 

One of the features of a good credit counseling agency is that they’ll provide a feasible budget for you according to your financial situation. In addition, a good counseling agency will ensure that proper concessions are put in place when you enroll in a Debt Management Plan. They also help to maintain smooth communication with your creditors and spread adequate payment amounts to individual creditors. These payments are usually made from your personal bank account to the counseling agency automatically. 

The payment is made in notable parts to ensure timeliness in payments. This is because making late payments to your counseling agency will lead to late payments to your creditors and might likely cause damage to your credit score. Furthermore, you stand the risk of having your interest rate and payment concessions included within the plan rescinded. This makes no sense as it defeats the purpose of setting up the Debt Management Plan in the first place.

Conclusion

A good counseling agency will issue monthly statements on your loan repayment. When you receive it, compare it with the statement issued by your creditors to ensure that there aren’t any forms of discrepancies and that the counseling agency is being transparent with the payments to your creditors.

You must ensure that you explore all the options available to you at the time of choosing your debt management plan provider. Not only that, but you also have to know the during for which you’ll make the repayments and how much you’ll pay in all. Lastly, you must always remember that committing to your plan is essential as this will eventually bring you out of your debts.