Introduction

Almost every inhabitant of this planet is under some amount of debt. He may owe money to any lending body (that he took in the form of a house loan or student loan or to finance any personal need) or a friend or to anyone. We all have some money on us that belongs to someone else. These loans become a major impediment to one’s financial growth and success. There are companies called credit counselling companies or organizations that manage the effects of all kinds of debts on your financial health and help you repay them without causing any huge damage to your bank account by offering debt management plans. They also help you familiarize yourself with the pros and cons of a debt management plan before you start following one. They analyze your financial and debt situation, then look for all possible ways of getting you back on track and hence design a debt management plan for you that will help you decrease interest rates on your credit cards. They also help you in lowering your monthly payments and rather use that money to decrease the pressure of debt without making you go bankrupt.

What is a Debt Management Plan Actually?

The plan devised and issued by a credit counselling company aiming at reducing the pressure of debt and your finances is called a debt management plan. When you ask for guidance from a credit counselling company, they refer you to a counsellor who applies all his expertise to your case. First, the counsellor analyzes your financial situation, provides you with all possible options and ways and asks you to choose whatever you feel fine. Then he sets up a meeting with the company or person you owe money to, tells them your debt management plan and asks them to modify your payment plan according to it. During this meeting, your counsellor tries to negotiate with the creditor, which can result in reduced interest rates. The overall aim here is to repay the entire amount in three to five years and make you free of it. Once all parties agree on one plan, you have to pay a fixed amount of money every month to the credit counselling agency that devised your plan. Your counsellor then distributes that money to the companies and people you owe them to. He also charges a small fee every month.

Pros or Benefits of a Debt Management Plan

This section includes all the benefits you can enjoy by following a debt management plan.

• A Debt management plan eradicates the chaos caused by the requirement to make multiple payments every month to your creditors. Instead, you have to make one single payment to your credit counselling company. The counsellor then takes care of the amount you are supposed to pay. This saves you from the trouble of managing a complex payment calendar to deal with all debts.
• It is a major part of your debt management plan that your counsellor talks to the creditors and negotiates to lower your interest rates. You can save money from there as well as repay all the debt money at a faster pace.
• Debt management plans aim at decreasing your debts and making you consistent with your payments. This proves helpful in increasing your credit scores.

Cons or Demerits of a Debt Management Plan

It is necessary that you see both sides of the coin before selecting what are you going to do. Like benefits, a debt management plan has its demerits which are listed below.

• Credit counselling companies try to make sure that you cut off all sources of increasing your debt. For that purpose, they would ask you to stop using your credit cards.
• While you are repaying your debt via a debt management plan, you are not allowed to use any other source to ask for more loan.
• It is not certain that your creditor will agree to your plan. Your counsellor must be excellent at negotiations to achieve this level.

Conclusion

If you are struggling with paying back all the money you owe others and organising your finances, debt management plan is the best option you should definitely choose. You can also go for its alternatives like debt consolidation plan or debt settlement plan.