People who are finding it difficult to cope with their debt payments can opt for a debt management plan (DMP). Only unsecured debts can be tackled through a DMP.
The top reasons when to consider a debt management plan are usually when circumstances change or the economy. Redundancy, ill health, separation from a partner, a new child or a global pandemic such as COVID19. If your circumstances are going to change and you think you are going to struggle to repay your credit commitments contact us today to find out how we can help you.
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However, just like other debt relief programs, debt management plans too, have some drawbacks.
Every debtor should analyze whether or not a DMP will be the right debt solution for him, prior to enrolling into one.
Therefore, debtors need to be aware of the various advantages of a debt management plan to make a better choice.
Advantages of Debt management plan
Advantages of a debt management plan:
I. Cap on interest hike – In a debt management plan, debt counsellors will contact your creditors and negotiate with them to put a halt on further interest hikes on the loan.
In addition to the cap on interest hikes, they can coax the creditors to lower the interest rate and do away with any sort of additional fees applied to their loans. This way extended debt payment schedules will not cost more and the payments directly go into reducing the principal balance. Therefore, a DMP will help you to pay off all your debts much faster.
II. Minimized debt payments – Through a DMP, your overall outstanding balance is reduced to a comfortable level. This will save you some money to meet other essential expenses like medicals bills, mortgage, house rent and so on. However, you should also note that the extended repayment schedule will culminate into extended payments of interest on the loans.
III. Manoeuvrable payment plan – DMPs provide a good amount of flexibility with respect to other debt relief programs. Moreover, DMPs will be an unofficial deal between you and your creditors. Hence, you have the facility to customize the debt repayment plan as per your financial condition. For instance, you are allowed to make bigger payments, if your monthly income is high.
Similarly, lenders may oblige with smaller payments, in case your monthly income is way too low. After all such initiatives, if you think that it would do little to help restore your financial stability, then you have other debt-relief options to explore.
Last but not the least; you must know that, in the event of your failure to adhere to the agreed debt management plan, your credit score could be affected. Moreover, it is up to the creditors to accept or reject your repayment plan.