Debt Management ProgramsBy Caitlin in Debt
What is a debt management program?
When you start a debt management program it allows you to make one monthly payment that not only covers all of your debts but is based on what you can afford. The whole point of a debt management program is to help you pay off your debts in a stress free manner and to help you save as much money as possible on fees and interest. Before you decide that a debt management program is right for you, you should understand that debt management programs only work with your unsecured debt. Unsecured is: credit card bills, lines of credit and any other debt that did require collateral when you first got the credit.
To start a debt management program you have to work with credit counselling service that will help you start the process of making an agreement between you and the creditors you own money to.
- Once you find a credit counselling service that is right for you, a credit counselor will work closely with you and build a plan that is specific to your personal debt situation.
- Your counselor will contact the creditors that you are in debt to arrange one low and realistic monthly payment so that you can start making payments right away.
- Your debt counselor will ask the companies and creditors to reduce the cost of fees and interest, generally speaking most will accept.
Essentially, a debt management program allows the majority of your unsecured debt to be consolidated into one single monthly payment so that you can get back on track to being debt free.
How does a debt management program work?
Working with a debt counselor on a debt management plan that’s personalized to your financial situation could be the help you needed all along. Your counselor will help you every step of the way by handling all the details. Here’s how a debt management program works.
- A debt management program does NOT get you out of paying your debts. In fact it’s the opposite, a debt management program makes sure your creditors get the money your owe them.
- Your creditors will however agree to accept payments over a longer period of time (usually no longer then 4 years), that way you can make smaller payments each month.
- In some cases a creditor may reduce or remove the interest associated with your debt.
- Your monthly payments will be simple and easy to handle, usually done by telephone, debit card or money order.
- Just remember that not all of the debt you owe will be included in your program.
- The agreement that your counselor makes with your creditors is completely voluntary and not legally binding.
What are the pros and cons of a debt management program?
- The reduction or removal of interest on your debt.
- It will take maximum 4 (sometimes 5) years to completely pay off the debt that is a part of your program, this is significantly faster than if you were to try to pay off your debts with no help.
- One simple monthly payment. It will be much easier and less stressful for you to keep track of one payment as opposed to many payments to many different creditors.
- Your debt counsellor will speak on your behalf to your creditors, that way you won’t have to deal with them on your own.
- A debt management program can include credit card debt, payday loans, bank loans and finance company loans.
- If you can’t get a debt consolidation loan because your credit score is too low than a debt management program is a great option for you.
- A debt management program is voluntary and therefore not legally binding which means that your creditors can opt out at any time.
- You won’t have any protection from your creditors and they can still send collection agencies after you.
- You will not be able to open any new lines of credit or apply for new credit cards; if you do it could hurt the success of your program. Before you decide to start a debt management program make sure you won’t need any kind of new credit in the near future.
- Your debt management program might not take effect for a couple of months; this means that your creditors won’t receive your payments right away. You should continue to make the regular payments on your bills so that you won’t miss a payment.
A debt management program is a great option for those who can’t afford to make the payments on their debts in full. It will allow you to work towards paying off your debts and regaining some control over your financial life. The most important part of your debt management program is for you to learn better money management skills so that you won’t find yourself in the same situation in a few years from now. Your debt management counselor will show you how to make a budget and stick to it, keep track and take control of your spending and set financial goals.