Is a Debt Management Plan Right for You?

Working your way out of the red and into the black can be one of the most stressful processes in life. Getting out of debt can be akin to catching sand, with your best efforts bearing little fruit and many solutions having obvious pitfalls.

The rise of the payday loans has simply led to many people increasing the level of their debts with record numbers of complaints being made about the service providers.  In many cases, such payday loans are merely increasing the problems of debtors.

What is a Debt Management Plan?

A Debt Management Plan is not a vehicle to reduce your debts or wipe them out, it is simply a restructuring of your repayments to ensure they are better suited to your income and circumstances. A debtor (the person who is in debt) will still be required to pay back the totality of their outstanding debts but at a more suitable rate.

A debt management advisor will correspond with the creditors (the parties to whom the debt is owed) on behalf of the debtors in a bid to restructure the repayment scheme. Creditors may be receptive to this approach as it will reduce the likelihood they will have to chase the debtors for the outstanding balance.

The advisor will first meet with the debtor and assess their ability to pay the debts owed and develop a scheme best suited to their financial situation. The advisor will measure the levels of income and outgoings to determine a rate best suited to all parties. All of the debtor’s outgoings are taken into consideration, ensuring they are not struggling to make the repayments.

When a new rate of repayment is agreed upon, it will be paid to the debt management advisor who will divide it accordingly between the creditors. This will continue until the entirety of the debt is paid off. The advisor will also attempt to persuade the creditors to wipe out any interest or additional charges.

Who Is Eligible for a Debt Management Plan?

There are a few parameters that must be met for a debtor to be eligible for a Debt Management Plan; you should refer to individual providers to check these.

Advantages of a Debt Management Plan

The major advantage of such a plan is how it allows you to repay your debt at a rate best suited to your financial situation and genuinely giving you the ability to work your way out of the debt. The one regular payment will help you pay off all of your unsecured debts.

A professional debt management advisor deals with all of the intricacies of the plan, meaning that you don’t have to. Furthermore, your creditors will not be able to pursue you and must communicate only with the advisor. Where possible, advisors will also move to persuade creditors to freeze the interest or additional charges on the debt.

The payments can be made in a periodical method that best suits your circumstances. Additionally, the advisor will revisit your case regularly to ensure that the repayment scheme suits all parties.

Disadvantages of a Debt Management Plan

Despite being given the opportunity to repay all of your debts in a manner better suited to your personal needs, there are still a few drawbacks to a Debt Management Plan. Your credit rating will be affected when implementing the scheme.

The lower rate of repayment means that it will take longer for you to repay the debts meaning the day you are debt free may be further away. Additionally, there is no legal requirement for your creditors to accept the lower rates of repayment and will only do so when they understand how it will benefit them.

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