Good Side Of Debt Management Plan Comes With Its Bad Side
What is a debt management plan?
A debt management plan ensures that you get your debt under control with the help of financial planning and budgeting. The strategies implemented in debt management plans help you lessen the burden of your current debt and head on to putting an end to it ultimately.
As you enroll for the debt management plan, you work with the nonprofit credit counselling agency. Next up, your counsellor will contact your creditors and ask for their participation to get them to lower the monthly payments, reduce the interest rates on your debt and make more such adjustments.
Life gets a whole lot stressful when debt keeps lingering through the living. However, choosing the option of DMP comes with its consequences alongside the benefits.
However, taking a leap towards it becomes essential to understand it appropriately.
GOOD SIDE OF DEBT MANAGEMENT
You will only have to make a single monthly payment.
When you opt for a debt management plan, you will only have to take care of one payment to your credit counselling agency. You won’t have to worry about making multiple payments every month. It is on the credit counselling company to make the payments to your creditors on your behalf.
Having a credit counselling company by your side is highly beneficial when you have many accounts to manage, or you struggle to keep track of the due dates. It saves you from the constant juggle of keeping up with the complex payment calendar. All you have to take care of is making the payment to your credit counselling agency on time; then, you are good to go stress-free for the rest of the month.
There’s a chance of securing lower interest rates.
A debt management plan allows you to attain the benefits of having your counsellor negotiate lower interest rates on your behalf. Often, higher interest rates can severely increase the monthly payments when the case is about credit card debt and more such unsecured loans. However, the opposite is equally true, meaning lower interest rates lower the monthly payments.
It allows you to pay off your debt faster.
Typically people with a debt management plan pay their debts in 3-5 years on negotiated terms and lower interest rates.
The chances of seeing your credit score increase over time are higher. The lower interest rate allows you to save money on your payments. Even some of your payments can be applied to the principal balance. This consequently helps you pay your debt even faster.
BAD SIDE OF DEBT MANAGEMENT
It demands that you close your credit card accounts.
Credit cards included in your debt management plan have to be closed. This happens because a closed credit card will not let you take on more debt while you are busy paying back your current balance. This way, it will be clear that you are using the lower interest rate and even debt management plan revives for the intended cause.
It is always recommended to avoid using the credit card even if it is not included in your debt management plan when you reach out to trusted sources for debt advice in the UK. Avoid it unless there is a case of emergency. Because the creditors are usually involved in your DMP, and they have access to monitor your spending, they may end up asking you to close the account when they notice new debt.
To attain the benefits, you must make consistent payments.
A debt management plan comes with its benefits; however, to keep those benefits, you must consistently make monthly payments. The benefits usually include smaller monthly payments, lower interest rates and more.
If you break the chain and stop being consistent, you might lose the benefits.
Not all creditors prefer to participate.
It is significantly less likely to happen that creditors refrain from participating in the debt management plans; there are still some of them that don’t. However, your credit counselling agency will indeed negotiate for you and secure the best terms, but the creditor will still determine the conditions and benefits. In some rare settings, creditors may reject the debt management plan, and in such circumstances, following the plan may not be the best option.
Conclusion
To better understand if the Debt Management Plan is right for you, you must not hesitate from seeking trustworthy and affordable debt advice in the UK or a credit counsellor who can guide you throughout your journey of becoming debt-free.
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