Debt management plans, also known as debt settlements, debt consolidation, debt management program or credit counselling, is an agreement between a lender and a borrower which deals with the repayment terms of an unsecured debt. This most commonly refers to an individual finance procedure for people addressing high consumer debt through a debt management company. However, it can also apply to mortgage loans, commercial real estate loans, and student loans, and other types of unsecured debts. While this form of debt management can provide debt management solutions for people facing financial problems, there are disadvantages as well as advantages.
The primary disadvantage of this debt management solution method is that it can often result in a lengthy negotiation process. For example, a debt management plan which is negotiated by a debt management professional and the creditors can take a lot of time to be signed off. For people struggling with unmanageable debt, this wait can be a stressful time, even though it represents a step in the right direction when it comes to handling your debt.
There are two different ways that individuals can go about getting into a debt management plan. They can attempt to do so themselves, or they can go through a debt management company. Many people do not think twice about enrolling themselves in a debt management plan as this is an attractive alternative to bankruptcy and can have a much lesser impact on your credit score than other debt management solutions. They will contact their local credit counsellor, explain their situation, and request that they be put on a program. These credit counsellors are usually nonprofit and will not charge any money for their services.
On the other hand, some individuals worry about enrolling in debt management plans because of the negative stigma that it can create. The truth is that debt management plans are great ways to handle large amounts of debt over time. Credit counsellors typically have long-term relationships with credit providers and other financial institutions. It is not in their best interest to lie to these entities about one's ability to make payments. However, they can still provide debt solutions and put a person on a long-term program based on their personal circumstances.
To get started with a debt management program, a credit counsellor will contact all of the major credit companies a client is currently dealing with. They will inform each company that they will be putting the client on a debt management plan. Depending on the credit counsellor's contacts, the client may also be invited to apply for a secured credit card from one of these companies. This card will be used to pay off all of the debt accumulated from the debt management plan. This means that the interest rate will be lower than it was when the credit was first issued and that the time frame for repayment will be longer.
Once the debt management plan has been established, the credit counselling agency will negotiate with the individual debtors to establish a new payment structure for each account. In some cases, both the interest rate and the time period for repayment will be reduced. In others, the terms may only be changed. In addition, a revised monthly amount due will be communicated to the debtors and the agency will begin contacting bill collectors to make sure that they are sending the agreed upon payments on time.
If you are struggling with debts then there are plenty of options available to you that will help you to avoid having to declare bankruptcy, and IVAs are just one of them. An IVA, or individual voluntary agreement, is something that can be arranged through a third party who will negotiate with your creditors to create a more manageable payment plan. The third party company will consolidate your debts into a more affordable, single monthly payment which is then distributed among your creditors. This approach might seem daunting, but with the help of impartial debt advisors you will benefit from a less stressful way to manage your monthly repayments. There are plenty of advantages to IVAs, and one of the most important is that they sometimes don’t affect your credit score at all, and if they do they have a much smaller impact than filing for bankruptcy.
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