Affordable Mortgages

Debt Advice - Management Plans

When your debt is more than you can handle, there are options. One choice that many borrowers make is one of the many debt management plans available. Debt management plans can assist you with your financial obligations by eliminating interest charges and lowering monthly payments. They are usually arranged through a consumer credit agency. Debt management plans have helped many borrowers avoid bankruptcy, pay off current obligations and return to a state of financial health.

How do they Work?
Debt management plans are generally initiated when an individual walks into a debt advice agency looking for help with their financial situation. The agency evaluates a person's income vs. expenditures to determine whether the individual is a good choice for debt management plans. If so, the agency will contact the individual's debtors to try to make payment arrangements that are reasonable and affordable.

Once a debt management plan is in place, the individual will pay a fee to the agency. In many cases, the first payment made will go directly to the agency to cover administrative costs. After that, a percentage of monthly payments to the creditors will go to the agency for their services. Services might include support and administration in addition to the initial start-up of the plan. Most customers make their payments directly to the debt management agency, who then distributes the funds to the appropriate creditors

Debt management plans include a number of benefits. First, the plans provide an overall reduction in the amount of debt owed, per an agreement between the borrower and his creditors. The plan will usually also include a complete elimination of interest charges. Beware of debt management plans that defer rather than eliminate interest charges, or you may end up with even more debt over the long term. These plans also allow borrowers to pay off balances over a longer period of time, further reducing monthly payments. Finally, many debt management plans include an agreement by lenders to stop legal proceedings against the borrower.

Advantages and Disadvantages
There are good and bad points to debt management plans that must be weighted to determine whether this is the best solution for your debt issues. Advantages of debt management plans include:

• Credit – Many borrowers save their credit history by paying off obligations rather than declaring bankruptcy.
• Payments – The payments are greatly reduced so the borrower can afford to keep up with the scheduled payment plan.
• Convenience – Payments are made through the agency, so the borrower no longer has to work directly with different creditors.

 

Disadvantages of debt management plans are:

• Cost – Most agencies charge a monthly fee for their services, which can be as high as 15% of the total monthly payment.
• Legal Ramifications – Debt management plans are not legally binding, so creditors can change terms when they choose.
• Time – It will probably take longer to pay off your debts through debt management plans.

 

If debt management plans sound like the right solution for your credit woes, we would be happy to refer you to a local ethical specialist for just this purpose.