What is a debt management program?
When you start a program like this, it allows you to make a payment that not only covers all your debts, but is adjusted to your means. The main purpose of this program is to help you repay your debts without stress and allow you to save the most money by avoiding all fees and interest. Before deciding whether the program is right for you, know that it applies only to unsecured debts. Unsecure means: credit card, lines of credit or other loan that required a guarantee when you requested it.
In order to start the debt management program, you must contact a credit advisor who will help you make an agreement between the company that you owe money and you.
- Once you have found a credit counseling service that’s right for you, an advisor will work with you to build a plan specific to your personal situation.
- Your advisor will then contact creditors to arrange an affordable monthly payment so that you can pay off debts as soon as possible.
- Also, your advisor asks creditors to lower fees and interest costs. Very often, they will accept.
Essentially, such a program will allow the consolidation of unsecured debts into one monthly payment, which will allow you to get back on track quickly and free you from your debts.
How does the debt management program work?
Working with an advisor on a debt management plan that will be customized to your financial situation might be what you need. Your advisor will help you step by step by providing you with all the details. That’s how this program works:
- The program will not pay the debts for you. In fact, it’s the opposite. The program ensures that creditors recover the money you owe them.
- Your creditors will still accept payments over a longer period than expected (no more than 4 years). This will allow you to decrease the amount of monthly payments. In some cases, the creditor could even reduce or remove the interest associated with your debt.
- Your monthly payments will be simple and easy to manage, made by phone, debit card or postal money order.
- Remember that the program does not apply to all debts.
- The advisor’s agreement with the creditors is purely voluntary and not legally binding.
What are the advantages and disadvantages of a debt management program?
- Reduction or disappearance of interest on debt
- It takes a maximum of 4 (sometimes 5) years to completely pay off all your debts that are part of the program. This is much faster than trying to pay off your debts alone.
- One monthly payment. It is much easier and less stressful to manage a single payment, as opposed to having to pay several payments to several creditors.
- Your advisor will talk to the creditors in your name, which will save you from dealing with them personally.
- The program includes credit cards, bank loans and corporate loans.
- If you can not consolidate your loans because your credit score is too low, then this program is a great solution for you.
- Creditors respect the program voluntarily, which means they can withdraw from their promises at any time.
- You will have no guarantee from your creditors and they can still send the collectors after you.
- You will not be able to get a new line of credit; if you opt for a new credit, this could affect the success of the program. Before starting a debt management program make sure you will not need new credits in the coming years.
- The effect of the program could be seen only after a few months. This means that the creditors will not receive the payments right away. You will continue to make regular payments to avoid missing a payment.
A debt management program is an excellent option for those who can not get out of debt or can not pay all of their debt. This program will allow you to repay your debts and regain some financial confidence. The main goal of the program is to provide you with the necessary tools to have a better management of your finances in order to avoid such incidents soon. Your advisor will teach you how to make a budget, how to meet it, and how to monitor your expenses and financial goals.