Debt Management Programs – All You Need to Know
A great line by Oscar Wilde reads, “A man who pays his bills on time is soon forgotten.” Perhaps a basic human desire is to be remembered, but surely you would rather be remembered for something other than ignoring your debt! Life as a debtor is ruled by creditors, multiple payments, penalties, late fees, stress, stress and stress! Money can seem to be playing its own game, out of our control. If you too are in debt and can visualize no self-help solution, then consider a Debt Management Program. This is one debt solution you can opt for at a time when bankruptcy seems to be your best bet. With debt held by the public being 63% of GDP, the debt trap has become almost omnipresent. Awareness about the solution, therefore, is a must. So, let us take a closer look at what a debt management plans entail:
- What is a debt management program? In simple terms, it is an arrangement provided by a credit counseling or debt management agency which helps debtors to manage their debt properly and repay it in a step-by-step manner. It consolidates all unsecured bad debts into a single amount and makes the payment simpler. The company negotiates with creditors for lower interest rates and waivers on late fees and/or penalties, thus making payment hassle free and less than what you would have actually paid.
- Basic features of a debt management plan:
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- Credit counseling: This refers to the “face-to-face” session between the debtor and the counselors of the debt management company. During the session both the parties discuss at length the present debt situation and come up with the best debt solution to resolve the debt problem in systematic manner.
- Debt consolidation: Herein, the company offers loans to debtors to repay their debts. The debtor then has to make a single monthly payment, usually a lower interest rate.
- Debt settlement: This involves negotiation with creditors so that they agree to reduce the loan amount and/ or the interest rates thus facilitating a speedy debt settlement.
- Kind of debts: Only unsecured debt can be covered under a debt management plan. These include credit cards, bank overdrafts and personal loans. Secured debts like mortgages or rents cannot be included in such a plan.
- Steps in a debt management program: To formulate the best debt solution, a number of factors are evaluated.
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- Firstly, a list of all the creditors and the amount owed to each is prepared. This includes only the debts that can be covered in the plan.
- Then, your income from various sources and your expenditures, including payments for secured loans, are evaluated.
- The amount available to repay the debt is then calculated.
- A payment plan can then be worked out, taking into consideration the interest rates, late fees, due dates for repayment, etc., and negotiations for lower payments are made with your creditors.
- Advantages for you:
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- It brings all your multiple debts under one umbrella, making it easier for you to handle the payments. You are saved from the hassles of remembering the due dates of all your payments.
- Most of the time it will also save you from the harassment of creditors.
- You end up paying a lesser amount as the interest rates are lowered.
- Your debt repayment will continue while you continue with your regular expenses and other payments. A well planned debt management program will thus leave you happy and stress free knowing that your debts are gradually being repaid without affecting your day-to-day necessities.
- Upon successful completion, a debt management plan will bring you back from the brink of seemingly inevitable bankruptcy and leave you with a healthy financial situation.
- Making the most of it: When you are determined to come out the debt trap there is nothing that can stop you. The plan will surely be the one debt solution to get you out of the debt trap. But some additional to-dos would never hurt, right? So, for a faster recovery and future safety from debt, consider the following:
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- Make your payments on time: Following the plan diligently with strict timelines will be a major factor in how quickly you get out of debt. You have already met many deadlines; it’s time to go against the clock.
- No more debt please: Avoid taking any more loans or incurring any other debt. This comes with a major emphasis on credit card debts. Use only a single credit card and use it wisely. Before spending, always calculate if you will be able to pay it off promptly.
- Be money wise: You have already struggled because of improper management of money. Now that you are in the process of rectifying your previous mistakes, learn from the past and manage your money effectively. Strictly follow a budget. Remember that simple living today is better than a debt-ridden life tomorrow.
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