No matter what kind of loan it is, whether it is consumer debt on credit cards, mortgage or student loans, most people soon find themselves trapped in burden of debts. Moreover, the high rates associated with these loans can slowly turn them into massive debt burdens.
A debt management plan is perhaps the best and effective way to get rid of your debts. These kinds of plans are a good debt solution, particularly if your troubles are expected to be short term.
First of all, let us find out what exactly debt management is? Well, Debt Management Plan or DMP is simply a solution that assists people who are struggling to get out of debt free and repay their unsecured debts. It is basically an agreement between lenders and a borrower who requires lowering their repayments. People struggling with debts could really get benefited from a debt management plan.
It is something like a credit counselling service that can put together for your unsecured debt. The counselor will:
- Examine personally at your situation and develop a plan that can be followed realistically based on your income
- Work with your creditors to set up for the single, low monthly payment
- Ask people to whom you owe money to reduce the fees and interest on all your debt, and there are chances that most will agree to do so.
- A good debt management plan is where you can make reduced monthly payments towards repaying your debts. The various features of a debt management plan are:
- It helps in reducing your monthly repayments
- It handles negotiations with all creditors
Now, let us look upon various benefits and drawbacks of debt management plans:
Benefits: A debt management plan can benefit you in several ways such as:
- You’ll only be required to pay one monthly payment
- Paying off regular monthly payments allows you a better control over your finances
- Many of your creditors will stop threatening you by means of calls and writing letters
- Your debt management company will directly deal with your creditors. Hence, you won’t have to contact your creditors; company will do that for you
- You’ll be able to get peace of mind as you will no longer be contacted by your creditors or debt collectors
- There are chances that you’ll be able to reduce or freeze interest charges
- You may also get the opportunity to lessen your repayments to a certain level that you can afford
- On completion of plan, you’ll find that your unsecured debts will be cleared
Drawbacks: Sometimes a debt management plan can be unsuitable for you sue to reasons like:
- It may take a long period of time to repay your debts
- Your debt management company do charge an amount for their services that means it will take a long time to repay your debts
- You might not afford to pay off £100 per month to your creditors
- You cannot force your creditors to enter into a debt management plan and they may still contact you regarding immediate repayment
- Debts like mortgages and other secured debts are not covered under a debt management plan.
Thus, a debt management plan is definitely the best way that enables you to get rid of your debts by taking one affordable monthly payment from you rather than the multiple payments that you might otherwise be making to your creditors.