Will talking to a credit counsellor be of benefit for you?
If you are struggling to meet your monthly financial commitments, it may be time to consider speaking to someone who can help.
- Are your monthly payments going to the interest and not the principle debt?
- Are you simply overstretched and can’t afford to pay all your creditors (people you borrow money from i.e. Credit cards, payday loan etc)
A good Credit Counsellor will review your financial situation carefully and advise you on what you can do to start getting debt free.
Debtors should talk to credit counsellors about other ways to pay off their debts.Getting declined for a consolidation loan does not mean you should look towards bankruptcy. There are alternatives.These may cause positive changes in your life faster than you imagine.
What is a Debt Management Plan?
Debt Management Plans (aka. Consolidation Plan), is a payment program that both the debtor and creditors agree to. The debtor promises to make a fixed regular monthly payment, in return the creditors agree to something called ‘interest relief’.A program length is up to 54 months. At the end, the clients unsecured debt should be gone.
The debtor makes a consolidated monthly payment, which is then prorated out to the creditors.The outcome is an easier life for the debtor. They only have to be concerned about a single (sometime bi-monthly), payment.
Interest Relief
The secret to getting debt free so fast on a debt management program is the interest relief.Unfortunately, less people today seem to understand how interest is applied to unsecured debts such as credit cards and personal loans.Interest really should be written in another article, but to prove a point one lady we just recently helped had a load that would of cost her twice the origional amount.
The creditor never wants the debtor to be made bankrupt.Unsecured creditors are left with very little after the bankruptcy is finalized.Obtaining interest relief means that the debtor is finally able to pay off the principle debt. And that means they are then available as customers to the creditors again!One hopes though that anyone on a debt management program learns a valuable lesson.
Debt Management Programs and the negatives?
Once the last payment has been made, expect to see that debt on your credit report for up to 2-3 years. At the time of writing this, Equifax show this for 3 and TransUnion 2. The account is represented as an R7. The ratings are on a scale from 1 to 9.R1 shows no overdue payments, but R9 could mean a bad debt or bankruptcy.An R7 rating shows the debt paid in full with help from a consolidation program.
People quite often don’t like the thought of an R7 on their report until they think about the bigger picture.Living with a high debt to income ratio drastically reduces ones credit score. This basically means, how much of your monthly income is already assigned to outstanding debts.Several R7 accounts but being debt free does not seem so bad.
The debtor also agrees to stop making applications for any more unsecured credit cards.Losing the access to a credit card makes life hard. Life is easier when you can pay by card.Pruchasing items over the Internet and trying to rent a car are perfect examples. A great alternative for this is getting a secured credit card.Secured credit cards will allow you to improve your credit score while on a debt management program.
Summary
A debt management program is really a great alternative when you have been declined a consolidation loan.Living from month to month with debt is hard for anyone. It causes stress at home and prevents a person from enjoying life, as they should.
Anyone on a program like this must learn from it and adjust their living accordingly. Credit really isn’t a right, and it should be treated with care. Changes in our lives happen at any time.You could lose you job, have family problems and economy fluctuations are all out of our control. We should always be as prepared as we can for any obstacles that come our way.
Related posts:
- Debt consolidation with no consolidation loan and bad credit
- Debt Consolidation Quote – The First Step In Credit Card Debt Relief
- Debt Consolidation? Debt Manangement Could be a Better Choice
- Credit Card Debt Consolidation – The Relief That You Need
- APR Explained and Avoiding it through Credit Counselling