Debt Management Plan
One debt relief option that a credit counselling agency may offer is what is known as a debt management plan. A debt management plan is an informal arrangement where the credit counsellor contacts your creditors and attempts to negotiate a plan to make it easier for you to repay your debts. One way this is often done is by consolidating your debts into a single payment.
This process is designed to make paying your debt more straightforward. A lot of people who struggle with debt have difficulty remembering which debts they have to pay, when they have to make payments, and how much to pay each month. This confusion often results in missed payments, which can damage your credit rating and open you up to significant penalty charges.
In some cases, the debt counsellor will be able to negotiate a lower interest rate on your payments. If this happens, you’ll pay less in interest each month, which means you’ll save money over the life of your debt. The counsellor may also request that your creditors give you more time to repay your debts, which will make each payment smaller and easier to manage. However, with most debt management plans you will still be required to pay 100% of the debt that you owe. The goal of these plans is to make it easier to afford your payments, not to reduce the overall amount you owe.
Before arranging the debt management plan, the counsellor will meet with you and discuss your financial situation. You will likely work together to make a budget and determine how much you can afford to pay to your creditors each month. The counsellor will then need to contact each of your creditors and inform them of the situation.
If some or all of your creditors agree with the plan, you will make regular payments to the credit counselling service as per the terms of the plan. The counsellor will use these payments to pay off your creditors.
Before you agree to proceed with a debt management plan, you’ll want to make sure that it works for you financially and that it will save you money. Make sure you consider all aspects of the plan. For example, if the debt management plan sees you pay less interest, this could save you money, but keep in mind that you will likely have to pay a fee to the debt counselling agency. You’ll need to make sure that the money you’re saving by going with the plan is greater than what you are paying in fees.