Debt Management Plans are schemes offered by several specialized financial undertakings to smoothen out the repayment of debt burden you had incurred.
The financial companies who offer such plans are experienced in handling similar debt burdens, and generally present a series of proposals to attract you to their ideas. However before you sign on the dotted line you should be careful to understand what your commitments under the scheme are.
One should remember the basic truth that the finance companies are established to make profit for the companies and not to take up your debt burden.
Essentially the Debt Management plan is a scheme for arriving at a negotiated settlement between the lender and the borrower by a third party to settle the outstanding dues. Generally this involves repayment of the readjusted outstanding debt in installments over a long term. Most debt management plans run from 3 to 5 years.
Who Offers Debt Management Plans?
Many companies offer you ready made Debt Management Plans. One should first study the plan and check with the finance company whether the plan is the most suitable one for you.
Essentially such plans involve some readjustment of the debt by the lender and commitment of refund of the readjusted balance by the borrower in certain number of agreed installment. The mediator or the finance company also charges the two parties for their services, and this may be in the form of service charges added to the installments.
Once you agree to any Debt Management Plan you are committed to honor it. Hence it is prudent that you should check whether you will be able to make the installment payments for the period that you commit and which is the source of funds you are planning for such repayment.
Using a debt management plan is a very common way of solving a debt problem. The idea behind a DMP is to reduce the payments you make each month to your creditors to an affordable amount while paying back as much as you can.
Having said that, even while in a debt management plans, where possible it is extremely sensible to put aside some of your income each month to fall back on in case of unexpected expenses such as a surprise car repair bill or broken washing machine.
If you have some savings to fall back on when these situations crop up, it will mean that you can pay for them without having to miss one or more of your debt management plan payments and therefore put the agreement at risk.
Having said that, even while in a debt management plans, where possible it is extremely sensible to put aside some of your income each month to fall back on in case of unexpected expenses such as a surprise car repair bill or broken washing machine.
If you have some savings to fall back on when these situations crop up, it will mean that you can pay for them without having to miss one or more of your debt management plan payments and therefore put the agreement at risk.
2 comments:
Thanks for sharing this great details about debt management plans. This type of plan is very common way of solving a debt problem to every one. Its too nice.
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