You can effectively reduce your debts by adhering to a debt management plan.
Do you find it difficult to manage the multiple debts you may be burdened with?
If so, this has the potential to add a lot of stress and pressure to your day-to-day life, something that will likely affect many aspects of your mental and financial health.
For this reason, you must be aware of the various strategies and plans that exist to assist you in managing and paying off your debts!
This article will explain the aspect of a debt plan and outline the various benefits it comes with to help you with your debts.
What is a Debt Management Plan?
So, what exactly is a debt management plan?
A debt management plan is an arrangement designed to assist a debtor in repaying their debts in an easy-to-manage and effective manner.
It combines all of your debts into a single monthly payment, rather than paying all of your debts individually which can become overwhelming, to say the least!
This payment does, however, only cover the debts classed as unsecured.
Unsecured debts are debts that are not secured by collateral, such as a home or a vehicle.
What are the Benefits of a Debt Management Plan?
There are a number of benefits to a debt management plan, including:
- Decreased Monthly Payments
- Improved Cash Flow
- Lower Interest Rates
- Better Credit Score
- No Late Payment Penalties
- Freedom from Debts
Decreased Monthly Payments with a Debt Management Plan
Monthly debt payments can be difficult to manage.
Between the many other experiences that add up over the month, keeping the debt payment within both your memory and budget can be a challenge.
Well, with a debt plan, you can decrease these payments for good!
When you sign up with a debt management plan, you will be given the ability to consolidate or join all of your debts together so that you will only be required to make a single payment each month.
This removes the bother of having to constantly juggle your debt payments, allowing more time for the better things in life!
A variety of plans also allow debts to be automatically removed from your account when necessary, removing the need to consider your debt payments’ due dates practically at all.
A Plan can help Improve Cash Flow
Cash flow is a vital part of maintaining your finances and, with a debt management plan, you may improve upon it!
Cash flow is the term for the amount of money that ‘flows’ through your household, meaning your income combined with your expenses.
It is vital that your cash flow is not negative, meaning that your expenses cost more money than you make as income, for obvious reasons such as insolvency or bankruptcy.
As prior mentioned, debt payments with a debt plan can be easily combined into one monthly payment, rather than the usual staggered payments depending on the terms of the debt.
This single payment can, while not necessarily decreasing the debt amount, prevent money from coming out of your income often, allowing room for growth within your cash flow.
Try to Find Lower Interest Rates
The use of a debt management plan can assist with the decrease of interest rates, saving you quite a large amount of money over time.
When you agree and sign up for a debt plan, it creates a statement that you are 100% dedicated to the proper, agreed-upon repayment of your debts.
Creditors will take this contract and feel assured within the debt repayment with the renewal of the agreement that you will indeed pay them what they are owed.
This will likely make them more willing to offer reduced interest rates, up to 6%-10%!
Reduced interest rates can save you a lot of money in the field of debt, benefiting you and your financial health greatly.
Get a Better Credit Score with a Debt Management Plan
This one may vary depending on the current finances of yourself/your business but having a proper debt management plan in place can help to increase your credit score.
The debts you included in the debt management will no longer be penalised on your credit report when enrolled in the agreement.
This can be highly beneficial because, provided you pay all of your debt payments on time, your credit score will no longer decrease.
Furthermore, once your plan has come to an end, meaning you have paid all payments on the agreement, you can begin to rebuild your credit score/report.
No Late Payment Penalties
Late payment penalties can be really difficult and expensive and can get you stuck in a loop of missed payments and increased late payment penalties.
With a debt agreement, this may be an issue of the past! As aforementioned, a debt management agreement may act as a security net or at least a comforter to your credit as you have reassured them that you will pay them what they are owed.
They may, in turn, act with a bit more leniency towards your particular debt and be more open to negotiation on the terms of the agreement.
Your credit counsellor may initiate a conversation with your creditor to discuss the possibility of them removing any outstanding, additional payment on your account due to missed or late payment.
This will allow you to place all of your money and priority into paying the actual debt payments rather than the additional charges.
A Debt Management Plan gives you Freedom from Debts
Debts are infamous for the stress they induce.
With all of the expenses involved in simply living while also trying to find the money to enjoy your life, they can be very difficult to balance.
How would you like to be free from your debts? With a debt management plan, a definite sense of freedom can be added to your financial life.
A debt management plan will likely take an average of approximately 30-60 months to fully pay off.
This may seem like a long time. However, the full amount you owed any one creditor on the plan will consistently be credited.
This can open up a variety of opportunities to get over your debts and move on with your life without any concern for them.
Debt Management Plan Key Takeaways
Debts are difficult.
Keeping them all managed at once, especially if you have quite a few, can be a real headache to deal with.
If this sounds like a problem you have, it may be time to consider a debt management plan.
However, it is important that you remember that debt management plans, while they have many benefits, also may have some negative effects, so make sure you are researching and applying your knowledge to your personal, financial situation.