Debt management program is basically an agreement between a lender and a borrower which resolve the outstanding terms of a debt owed to both the parties. This commonly refers to an individual finance procedure of people dealing with high consumer debt normally due to credit cards. In this type of program, the borrower and the lender sit down together to thrash out an affordable repayment plan for both parties. The borrower makes regular monthly payments to the lender that in turn is distributed amongst the principal and interest amounts.
A debt management plan may help those with high monthly credit card balances, especially when those amounts are difficult to pay on their own. However, before you rush off into signing up for anything read up on the various pros and cons. It’s important to have a clear picture of exactly how the program will work before committing yourself to anything. You can also go through some of the top debt relief companies online to gather information on different services available. This will not only give you a good idea of what’s available but also point you in the right direction of finding a reputable company to work with.
Debt management plans work best for those who have a genuine need to put their finances into order, without taking on further financial stress. Usually this means you will be looking to reduce the total amount you owe by at least 50% over a given time period. For this to work you will have to ensure you have adequate funds set aside each month to keep up with repayments to your unsecured creditors.
A debt management plan should always be followed up with a good debt settlement company. A professional negotiator will be able to get your creditors to agree on a settlement that is less than your debt total. In some cases they may agree to accept a diminution in terms of principal as well as a payment schedule which are easier to fit into your budget. If a successful resolution is achieved, you will need to make one monthly payment towards the total of your debts. You will need to confirm that the monthly payment made is made on time. The creditor’s aim is to avoid any form of additional financial debt and you will only be paying off the interest charges and the remaining amount on your original loan.
The advantages of debt management plans are that you will be able to reduce the financial stresses you are facing. However, they are not suited for all circumstances. Only those who have very little disposable income and the time to put a plan into action will benefit from debt management plans. Unsecured debts like credit cards are better suited to be settled with a debt settlement company rather than having them included in your personal loans.
Your first step should always be to speak to your banks or other lending institutions you owe money to. If you are in doubt about how much you owe, the best way to go is to get an opinion from a reputable debt management company. They will advise you on your options for reducing the monthly payments you need to make. One option you may consider is to make a lower monthly payment, but pay the difference in interest. Another option is to pay off the smallest of your secured debts like credit cards or personal loans, and keep the larger unsecured debts such as car loans, home mortgages and personal loans, for a lower monthly payment.