Debts rack up fast, yet we ignore savings advice. Avoid excuses and steer clear of debt. Explore loans without guarantor options. Borrowing money is not a bad idea as long as you need it for an urgent reason and your savings have fallen short of cash, but doing so without putting in little effort to save money is a horrible idea.
Unexpected expenses can catch you off guard at any time. You must have some money in your savings account so you do not panic and make a rash decision. Even if you manage to set aside a little money for a rainy day, it will do you good. The smaller the borrowing sum, the better. It is because you will end up paying less interest on your loan.
Unfortunately, sometimes you do not carefully take stock of your repaying capacity, or your financial condition takes a worse turn that makes it harder for you to keep up with payments. Here comes the role of a debt management plan.
A debt management plan helps you pay off your debts at a rate you can afford. It is aimed at those people who cannot make payments at the original rates. Your financial condition will be evaluated based on your living costs, and then the rates will be offered. A debt management plan is only advisable when you are left with some money after paying your living costs.
How to know if a debt management plan is right for you
A debt management plan is offered only if you can afford to keep up with payments after meeting your essential expenses such as food, utilities and transport. Under the debt management plan, you will be paying your lenders less than what you agreed to pay each month and, therefore:
- Your credit score will drop.
- Your creditors may take action, including court action, against you for the unpaid balance.
When you are on a debt management plan, you cannot qualify for a new loan, including loans without guarantor. It is crucial to settle your dues as soon as possible and strictly adhere to the agreed budget.
Not all types of debts are included in a debt management plan
Not all kinds of debts are included in your debt management plan. Personal loans are part of this plan. These loans include credit card debts, overdrafts, and very bad credit loans from direct lenders. However, priority debts are never included in a debt management plan. These include utility bills, mortgage payments and all those debts against which you have been sued.
You will have to keep making payments of priority debts at an agreed amount. When a debt management plan is offered to you, your financial condition serves as the basis for making a decision. You will not qualify for a debt management plan when you are left with no money at all after meeting your essential expenses, which include the payments of essential debts.
Will you be charged any fees?
Some debt management companies charge fees that can be in the form of monthly payments. It means the whole sum of money you pay every month will not go towards the debt payments. As a result, you will take a longer time to settle your debts.
Some debt management companies charge no fees. Do your research to find one that doesn’t. Explore loans without guarantor. The entire money will go towards your debt payments, and therefore, you will get rid of it faster.
Benefits and risks of the debt management plan
Here are some of the benefits of the debt management plan:
Benefits:
- The whole amount you pay every month will go towards your debt settlement if your debt management plan is free of charge.
- You need to make one monthly instalment, and then your debt management company will divide that money among your lenders.
- You are bound by the agreement. You can leave your debt management plan when you wish so.
- Your progress and financial condition will be tracked. The plan will be changed when your financial condition is changed, which means a debt management plan is flexible.
Risks:
- As you pay lower than the agreed amount, it will take a longer time to repay your debts.
- Interest will keep accruing on the unpaid balance. You cannot stop them, so you will have to pay a lot of money in the long run.
- Never forget that your credit score will be affected by choosing a debt management plan because you will be paying less than the agreed sum.
- Your lenders can take further action. A debt management plan cannot stop them from doing so, even if you stick to your payment plan.
- Taking out a new loan is not possible unless your plan is closed. For instance, you cannot qualify for loans without guarantor if you are on a debt management plan.
Tips for finding if a debt management plan is right for you
Though a debt management plan is an option when you cannot settle your dues at an agreed amount, you are still advised to carefully consider other options when making a decision. Talk to a financial consultant to obtain impartial advice. Some financial advisors may offer you free and yet useful advice.
You should consider the following factors to decide whether you should opt for a debt management plan:
- How much money you owe
- What kinds of debts do you have?
- How much money you can pay to settle your debts
- Do you expect your financial situation to improve down the line soon?
- Will you be able to pay back the money within the given timeframe?
A debt management plan is not recommended when you cannot keep up with payments. You will have to stick to your payment schedule.
Is a debt management plan similar to consolidation?
Some people may mistake a debt management plan for a debt consolidation, but they are both completely different.
- While consolidating, you take out a new personal loan to pay off your existing outstanding debts once and for all. However, a debt management plan does not involve borrowing any more money.
- A debt management plan allows you to pay less than the agreed amount, but not a debt consolidation.
- A debt consolidation agreement is not flexible like a debt management plan.
The bottom line
A debt management plan can help when you’re struggling to keep up with payments on loans without a guarantor. A debt management company will evaluate your financial condition and repaying capacity. You will be put on this plan only if you are left with some money to pay off your debts after meeting your essential expenses.
Bear in mind that some debt management companies charge fees, which delay the settlement of debt. You should choose a company that does not charge you any fees, so the whole amount is used to settle the outstanding debts.
Source: businessguruzz.com
