A Debt management plan is basically an agreement between a creditor and a debtor. It addresses the terms of an outstanding debt the debtor has. This is commonly referred to as a personal finance process of every individual with high consumer debt. Debt management is basically an unofficial agreement made with unsecured creditors for repaying debts over a certain period. Generally, this period is extending the amount of time over which will pay back the debt. Under debt management, the creditors are usually offered a statement of Affairs (SOA). With the help of this, your disposable income will offer the debt management company estimates to the creditors. They will decide on whether to agree or not. If agreed once, then you are supposed to pay regular installments to the debt management company. These installments are distributed amongst your creditors. This system will make it easier for you to repay your debts. The basic purpose of debt management is to help you clear your debts at a compact level over a fixed period. They will help you make a new start with your finances by managing your debts.
WHAT IS DEBT MANAGEMENT?
Debt management is such a deleting your debt. You can create a debt management plan yourself. You can also go through credit counselling to help you with your debt management plans. There are two kinds of credit counselling organizations. For-profit and nonprofit. Though both of these organizations operate differently, their goal is the same. Their goal is to help you develop a budget to pay off their debts and manage any new debt they may create.
HOW DOES DEBT MANAGEMENT WORK?
Debt management plans are meant to specifically address unsecured debt like your credit card debt and all other personal loans. They can work in any of the two ways.
The first way is a DIY version of a debt management plan. You can create a budget all by yourself, and that will allow you to pay off your debts and maintain your financial stability. You can also use repayment calculators, budget calculators, and financial management apps to help you keep on track. If needed, you can also negotiate with your creditors to try and lower your monthly payments or your monthly interest rates to help you decrease your debt. Once you have got the debt under control, you can decide if you want to keep or close that account. That is totally on you.
The second form of debt management is to go through proper credit counselling. You can find a credit counsellor in your area through your national foundation of credit counsellors. A credit counsellor will help you come up with a plan to repay your debt and negotiate a payment plan with your creditors. This payment plan is meant to help you eliminate all of your debts. Your credit counsellor might close your accounts. That depends on your circumstances as each debt is paid off. They will do so to avoid creating any new debt.
DEBT MANAGEMENT PROGRAMS
Debt management is often called credit counselling. This debt management system is considered a booming industry these days. Because more and more consumers are drowning in credit card debts. With promising debt relief, these programs are tempting to anybody struggling to stay on top of debt. But, the question is, are they legit? Will they help you or harm you? Here are some important things that you need to know before working with a debt management agency. Not only pitfalls to watch out for but also benefits that you can expect.
Never be fooled by nonprofit status:
Many debt management companies are organized as nonprofit businesses. They are very eager to share to make it look like they want to help you, and they are on your side. But the truth is, these companies are in business to make money. Debt management companies charge for their services as a modest monthly fee. You can try to work with an organization like “Accredited Debt Relief.” They pair with major debt relied on companies to negotiate your credit card debt with creditors.
DO IT YOURSELF
Many of the debt management companies involve simply contacting your creditors and negotiate alternative repayment plans. They try to do that hopefully with reduced interest rates and fees. But, if you are struggling to make payments, then you can usually do this. Maximum creditors will be eager to help you. But if you want, you can do it for yourself.
YOU CAN AVOID BANKRUPTCY BUT RETAIN THE OPTION
Nobody wants to declare bankruptcy, and so debt management provides a viable alternative to become legally destitute. However, getting debt management to start or credit counselling is a prerequisite to filing bankruptcy. So, even if you still cannot pay all of your creditors, bankruptcy is an option for you then even after you have tried debt management.
YOUR DEBT WILL BE ON AUTOPILOT
Once you have enrolled in a debt management program, and even if you let all your debt management plan pay all of your creditors each month, you might never have to worry about your debt again. Your payment will be auto-debited from your bank account, and your debt will be gone in just a couple of years. This is a very smart allocation of more money to your payments whenever you are able. But this is just a matter of logging onto your debt management company account page.
If you think a debt management program or plan can help you, you should get all the facts and do your research before you sign up for any program. Always do a background check. These programs can be beneficial for some, but they can do more damage than good for others. So it would be best if you were careful about all the factors about debt management programs.