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Advantages of debt management plans

Debt management plans are for people who borrow from Peter to pay Paul and might have serious debt problems. This may mean harassing collection calls, headaches due to late payments, and annoying promises that are hard to keep. So if there is anyone out there who still cannot manage to keep track of his/her finances, they are recommended to consider debt management counseling. These can be a solution to people’s debt problems.

Debt problems are nerve-racking especially if one feels it is an endless process: one may pay off a certain loan-amount, but due to late payment fees it seems like having the same amount of debt again and again. So it may seem that it is futile to pay back a certain percentage of the debt, but never reaching the stage of being debt-free. Choosing debt management plans may mean regaining control over your future financial situation.

To begin with, you should know that debt management plans are for people having difficulties keeping track of their financial duties. So those who have a large debt, and whom the monthly debt-premiums are too large compared to their income, are strongly recommended to consider debt management plans as a solution. This way people can make a clear sweep of their debts easier, and have a stable life from the financial point of view.

These plans are known all around the world as a help for people to pay their personal debts. Through these plans, a specialist called a debt consolidator will make an analysis of all of your debts. Moreover, this debt consolidator is responsible for representing the applicant in the negotiations with his/her lenders. This procedure is continued until one will get lower overall interest rates and thus, lower and more realistic monthly payments. These plans also have the advantage of taking the responsibility of paying back the applicant’s debts. The applicant is only responsible to make the needed monthly deposits to the credit counseling agency, who later distributes the required amounts to your creditors one by one.

But why is it good for creditors to accept your debt management plan? This is obvious: lenders will agree to get their money for sure, even if they do not get the exact interests or late payment fees they intended to get. It is better for them to get something than to get nothing. Moreover, lenders eliminate this way keeping track of one being late and not paying anything towards his/her debt. Similarly, lenders do not have to make regular calls either. It is true that they cannot collect the exact amount that one owes them at once, but they will surely get more than they would get without the debt management plan. This is understandable, if one thinks about the more realistic monthly payments arranged by a debt management plan.

So what are the advantages of these plans for the debtor? One is more likely to keep up with his/her monthly payments if these are more realistic and advantageous compared to the situation before the management plan. With a better term, one is more probable not to be late with his/her payments. As one is to pay less than he/she used to pay before, he/she will not have to fear of the next payment. So with a debt management plan you have to pay lower installments and there will be less stress in one’s life.

Generally speaking, these plans are advantageous if you use them to eliminate unsecured debts. The typical examples would be personal, or credit cards debt. Neither secured debts nor priority costs (mortgage payments, rents or utilities) are eligible for a debt management plan, as these costs cannot be reduced.

Among the advantages of these plans I can mention their flexibility features. There are many forms of these informal arrangements with creditors, among which the free debt management plan: a free organization financed by creditors. Besides a free help, you can choose a more professional company as well, but this will charge high fees for its service. These plans work as follows: plans proposed by the debt counselors are made on behalf of the applicant, and these plans are accepted by creditors. If the suggested plan is realistic, and is advantageous both for the debtor and the creditor, you can say that the plan was successful.

In order for a debt management plan to be advantageous, the proposed monthly payments should be realistic from the debtor’s point of view, so it should be based on priority costs (such as food, rent/ mortgage, utilities). Creditors may ask for details about the debtor’s financial situation each year. So if your income increases, the monthly payments are likely to be adjusted to that new amount. Generally, creditors want to make sure the debtor pays the maximum amount he/she can afford.

Talking about the advantages of the fee-charging debt management plans, you have to know that these companies generally provide enhanced support and services during the programme. It may happen that they manage to eliminate even the interest rates and the other possible extra charges. However, in order for this programme to be advantageous, you have to make careful calculations, and compare the new service with the old situation. You have to pay attention not only to the new reduced monthly payments, but also to the total interest that you'll pay during the refinanced loan's term, administration and handling fees charged by the organization offering the debt management service.

A useful advice that should be considered when choosing an organization providing debt management services is to check if it is licensed. Their offer must be studied carefully as well. It is useful to see if they provide you with free information about the services they offer as well as about their fees. Similarly, the company’s counsellor should be trained by an objective, outside organization. One may ask former customers, and read past reviews about the organization. This way you can be sure that he/she makes a secure choice and gets an advantageous service.

All in all, these plans take care of their clients who are going to have a supportable monthly payment. The plan’s counselor carefully assesses one’s debts, income and overall budget, and treats each situation as a unique case that should be resolved. Moreover, after negotiating better repayment terms for their clients and after the client pays off his debt, the organization can help him re-establish credit. So one gets an extended and safe service from the debt management planning that will make him debt free for sure!

Now let's back to the main page of this section to learn more about how to manage your debts. Just use the links below:

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