The Debt Management Plan – How to Get One

There are different ways to create a debt management plan and each has its positive and negative aspects.

Consumers who wish to reduce the costs involved usually create their own plan. This involves developing a monthly budget to live within going forward. Outstanding debts are listed and ordered by interest rate, from highest to lowest. The individual then contacts each creditor individually, requesting that it accept repayment that is less than the outstanding balance.

Creditors are under no obligation to accept this offer, although many do because they would rather be repaid some money than none. Some creditors may even offer to temporarily freeze interest accrual, allowing the individual to make more progress with repayment. People in debt should realize that they are asking for a favour when they contact their creditors. As such, they should be polite and avoid becoming emotional.

No Desire To Do All Of This Yourself?

Those who feel that handling debt management plans themselves is too labour-intensive can work with a debt management company. As mentioned above, a representative of the organization takes on the role of negotiator with creditors. The debtor makes a single payment to the debt management company, which then divides the payment among creditors based on the repayments negotiated. The fee charged by the company is sometimes built into the monthly repayment figure, allowing the individual to pay it incrementally.

The ability to make a single payment that covers all outstanding debts is one advantage to using a debt management company. Consumers no longer need to track payment dates and amounts to ensure that they do not miss a payment or pay less than the minimum required. They may even be able to select their repayment date, enabling them to better manage their cash flow. The chances that they will miss a payment are slim to none, especially if they select an automatic transfer of funds.

Another advantage of having a third party manage the debt repayment process is that no direct contact is required. The company providing debt management services handles this task on an ongoing basis until all outstanding debt has been repaid.

This frees debtors to focus on repaying the money, not spending time on the phone involved in tedious negotiations. The service provider and creditors draft the debt management plan, while the debtor is responsible only for repayment. This arrangement is much simpler and less time-consuming.

The fee charged by the company managing the debt is the only drawback to this arrangement. This leaves fewer funds to repay debts, working against consumers who want to repay their debts quickly.

However, many companies charge very reasonable fees and as mentioned above, may permit incremental repayment. These costs are also offset by the fact the debt management company will often have an agreement in place with various creditors, allowing them to obtain a lower rate than the debtor would be able to negotiate on their own.

When looking for assistance with developing a debt management plan, consumers should make sure the company is reputable. They should also carefully review all documents before signing them. The debt management company should be upfront about its fees and which creditors it can and cannot deal with under a repayment plan. The customer agreement should include a clause that allows the debtor to cancel the arrangement at any time if service is unsatisfactory.