A debt management program is basically an arrangement between a lender and a debtor which deal with the repayment terms of a pending debt. This commonly refers to an individual finance procedure of individuals dealing with high consumer debt, often unsecured debt like credit card debt or mortgage debt. This procedure is generally advised for debtors who are having trouble paying their debt on time or those with poor or no credit history.
This process is facilitated by a credit counselor. A credit counselor in a debt management company makes the arrangements and also acts as a mediator for debt negotiation. They have the skills to deal effectively with lenders and lower payments. It is common for people to go through personal finance counseling before entering into this arrangement.
The main benefits include lower interest rate. Since debt management companies negotiate on your behalf, they are able to provide you with a debt management program that results in a lower interest rate as well as payment installments that fit within your budget. Another benefit is that it can reduce your credit score to some extent. All these points make debt management program more favorable than personal finance solutions like bankruptcy.
The debt management plan involves debt settlement, negotiation, and reduction. You will have to pay fees to the credit management company. These fees will be equal to the amount of the debt management plan. You will need to pay these fees after you have made the required payments to the credit counseling agency.
To start the debt management program, you will be required to fill out a promissory note. This document contains all details about your debt management program. The debt management company will then transfer your payments to your account. You will receive a lower monthly payment, as your payments will be applied to your remaining balances. As soon as your balance is zero, you can stop making payments to the credit card companies.
You should also avoid making any new applications for credit cards and unsecured debts. If you fail to comply, you may face legal action. It is better to focus on debt management plans to eliminate your unsecured debts. Once this is done, you can start managing your personal loans and other secured debts in a more systematic manner.
A debt management company will negotiate with your creditors. It will make sure that you repay only the minimum amount due to avoid making any more payments. This allows you to save money, while the creditors recover at least some of their money. In most cases, the creditors agree to settle for a 50% discount to encourage you to repay.
A debt management company can set up an easy repayment plan, which you can follow faithfully. You will also be required to stick to the plan. You can use a budgeting program to plan your expenditures and repay your debts. You will also be provided with support during the time period of the repayment. Most of the time, you are allowed to make one payment per month to the debt management company, which disburses it to your lenders. Click here for more info on debt management.