Wednesday, December 6, 2023

Important Things to Know About Debt Management


There’s no arguing that debts can be beneficial to people who are financially challenged. Debts can help in many situations from purchasing properties and vehicles, adding capital to a business to emergency situations when there is an immediate need for a cash fund. But when debts become unmanageable, people who have multiple debts will just escalate their financial burden into a more serious money problem.

If you are one of the many people who are in deep debt and have no idea how to get out from the sinking hole, you should by now consider getting a debt management plan. This will provide a lifeline wherein you can have options in lowering interest rates, streamlining payment terms while paying off your debts.

What Is a Debt Management Plan?

A debt management plan gives you an option to pay off your existing unsecured debts with a more affordable rate. This debt option solution normally runs for a 3-to-5-year repayment term at a lower cost. Unsecured debts such as credit card bills, personal loans and medical bills can be restructured under a debt management plan. Debt management may mean taking out a new loan with easier terms and bad credit loans can help, especially to people whose credit history is so bad that they are already finding it hard to find a lender that will trust them.

Steps in Debt Management Plan

Review and assess your current financial situation. The initial process is reviewing your financial standing together with a credit counselor prior to aggregating a debt management plan. This will ensure that you get a tailored fit plan that meets your existing financial situation.

Negotiation process. It is important to note that a debt management plan will not reduce the amount of debts that you owe but instead the credit counseling agency will do its best to negotiate on your behalf. The objective is to lower your monthly payments by increasing the period that you will have to pay off your debts. Under the debt management plan, a request to reduce interest rates and waive some fees is considered.

Adjusting to a “cash only” lifestyle. According to the Federal Trade Commission, on average a debt management plan will take up to 48 months (about 4 years) with longer terms for some. There are many individuals who took advantage of this financial solution and were able to fully pay off credit card debts within five years or less. However, you should also consider that during this period you cannot apply for a new credit card account nor use your credit cards. Be prepared to live according to your means without relying on your credit. Enrolling in a debt management plan means that you will make huge adjustment in your spending habits and start embracing a cash only lifestyle.

Factors to get a Debt Management Plan

Debt management plans are not suitable for everybody who has issues with debts. But for many individuals, this financial solution helps in breaking the vicious cycle of debts, especially when you are planning to love a debt-free life. Debt management plan is good for people who have these considerations:

  • Paying high interest on credit card debts. Qualifying for a debt management plan does not require an individual to have late or past due credit card payments.
  • Juggling debts with multiple creditors. This is when a debt management plan becomes sensible in a situation wherein you are juggling between several creditors. This will allow you to consolidate debts and have only a single monthly bill each monthly cycle.
  • Maxed out credit limits. Credit utilization ratio negatively increases when maxing out credit card accounts which is a key factor in your credit score. The ideal is to keep your credit utilization ration low, within the 30% range as suggested by financial experts.