Debt management: How does the plan work?

Written by admin on March 20th, 2011

If your financial hassles stem from too much debts or your inability to repay back what you owes, then a good credit counseling agency may propose that you enlist a debt management plan. However, before considering signing up for one of these plans ensures a certified credit counselor has spent time reviewing your financial situation and has offered you with customized advice on how to manage your finances. Even if your debt management plan has proved to be effective, a reputable credit counseling organization will assist you with the creation of a workable financial budget and money management skills.

For a debt management plan to work, you must deposit money with the credit counseling organization each month. The organization uses your money deposits to pay up for your debts, for example student loans, credit card bills, medical bills, etc according to a payment plan the counselor expounds with you and your creditors. The creditors might agree to lower your rates of interest and may waive some of the chargeable fees but will normally check with other creditors to be sure they are also offering you with concessions that the credit counseling organization described to you. To be successful the debt management plan requires the debtor to make regular and timely payments over a specified duration of time, for instance 48 months. But, it is essential to confer with the counselor to come up with appropriate time limit on the duration to take to repay your debts. The debtors may also agree to adhere to not taking up any other loans when they are participating in the debt management schedule.

Before enrolling for a debt management plan there are certain questions a debtor may ask themselves, for example, is the debt management plan the only option available to manage my debts? Will the debt management counselor provides you with an on going budget advice regardless of whether I enroll in a debt management plan? It will be advisable to seek services of two debt management counseling organizations, for instance, if one organization offers only debt management plans, search for another that is offering credit counseling advice and that will assist in the creation of workable budgets and teaches you money management skills.

The following steps will be beneficial to your debt management plans and ensures that you avoid falling into further debts.

1. Continue paying up your bills when they fall due until the debt management plan has been given a nod by your creditors.

2. Before sending money the selected credit counseling organization, get in touch with your creditors and verify to them that you have acknowledged the projected debt management plan as laid out by your credit counselor.

3. Make sure the credit counseling organization’s payment schedule allows your debts to be paid in advance to avoid paying late payment fees and other penalties. A call to each of your creditors to confirm payment of your debts is essential.

4. Review each month repayment statements from your creditors to ensure they received your debt payments.

5. Lastly, if your debt management plan depends on your creditors agreeing to lower the rate of interest, waiver late fees, and other chargeable fees; ensure that the concessions are truly reflected on your monthly statements.

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