Structuring a working debt management plan

Structuring a working debt management plan

A Debt Management Plan (DMP) is an arrangement between you and your creditors to enable you to repay your debts with a regular payment you can afford. In other words, a DMP is a method for paying unsecured loans that include credit card bills, medical bills, student loans, or other unsecured debts which are hardly serviced or their service consume a devastatingly large portion of your disposable income.

Debt Management Plans are not legally binding and typically managed by a third party group (usually by consumer credit counselling service groups). Most DMPs have a duration between 3-6 years and certainly should become a preferable option especially when compared to personal bankruptcy.

Arranging for a reasonable and feasible DMP involves:

1. A comprehensive assessment of your financial situation that includes analyzing all sources of regular income and the forecasted income over the course of the next few years, all loans to be serviced during the same period, and any personal circumstances that might affect your financial capacity.
2. Re-negotiation of interest rates, payments and other debt terms with the lenders, based upon evidence that the result will be a higher possibility of collection by the lenders.
3. You and your creditors will be asked to accept the new repayment plan that involves lower monthly payments and longer repayment periods.
4. Your single monthly payment is then allocated on a pro rata basis to your creditors (fair and proportionate distribution of the payment over to your lenders).
5. A certified and trained credit counsellor will be assigned to cater your relationship with your creditors, offering at the same time valuable financial advice.
6. Your plan and your financial situation will be reviewed every six months or so just in case your circumstances have changed.
7. The plan will continue until your loans are cleared or until you wish to voluntarily end the arrangement. Most common reason for this being an improvement in income enabling a client to leave the plan.

Keeping a personal budget aligned with your DMP and checking your monthly statements promptly to make sure your creditors are getting paid accordingly is essential for the success of your plan. Moreover, your personal commitment along with the frequent communication with your credit officer are equally necessary.

It is quite important to avoid late payments once in a DMP. Even if creditors are willing to forgive late payments prior to enrolling in the DMP, regular payment defaulting can alleviate the benefits of such a plan (lower interest rates, flexible terms etc.). Additionally, your credit report ill be stained with delayed payments marks. In case you are facing financial constraints when in a DMP, it is advisable to contact your credit officer. Modifying a DMP to fit your updated needs is preferable to being late in your payments or defaulting altogether.

Oftentimes, in case of financial trouble and prior to enrolling in a DMP, it pays to receive valuable financial advice from credit counselling organizations that employ certified counsellors able in providing specialized education and counselling. Be aware, however, of some credit counsellors charging high fees or urging you to have over-flexible re-payment terms that can create a new round of incremental debt.

There are instances, such a car or boat loan, that creditors are allowed to repossess your belonging any time you are in default without providing any prior notice. In such cases and if repayment of the balance amount is not possible, you will be better off selling the car yourself and paying off the full loan balance before defaulting. This will save you the repossession costs as well as a lower credit score. Things become more complex when a foreclosure is likely since this process can have devastating effects to the majority of the homeowners. Most lenders are willing to work out with you a repayment plan that caters for your updated personal circumstances and at the same time minimize the chance of defaulting. Reaching an agreement over a new set of loan terms can be overly beneficial to the homeowner and alleviate the chance of foreclosure.

For those with significant debt problems, entering into our Debt Management Plan is an effective first step towards a financially stable, debt-free life. A Debt Management Plan will put you back into control of your financials without borrowing more money to fund the outstanding debt obligations which logically will make things worse. With only one lower regular (monthly or weekly) payment to make and a realistic chance of getting your interest and charges frozen or even waive certain fees, your loans will be repaid as quickly and economically as possible. For more information on sound debt management practises you may visit www.loansinfobank.com.