How a Debt Management Program Works
A Guide To Debt Management Programs
Juggling a lot of high-interest debt can be a challenge to say the least.
It will create a lot of stress on your budget and you may even find that you experience insolvency.
If minimum payments do not seem to be working and you are unable to get ahead of your debt, then you may want to look into a debt management plan.
A debt management plan is a debt-relief solution and it will help you to pay off any debts that you have, much faster.
This guide will help you to find out how a debt management program works.
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What is a Debt Management Plan?
A debt management plan is an assisted repayment plan that you can use to try and pay off any debt that you have.
If you are unable to make your payments, then a debt management plan could be an option.
You will enrol in a plan if you go through a credit counselling agency.
They will review your financial situation to make sure that the plan is actually a good option for you.
Debt management plans combine your credit card balances into a single repayment schedule.
With a debt management plan, you will still owe money to your original creditors.
The credit counselling agency will simply arrange a repayment schedule that will work with your budget and they will also negotiate or even reduce the interest charges that are being applied to your balance overall.
This is what makes the plan so great.
They’re faster and they also make it much easier for you to pay off any debt that you have so you can regain financial stability once and for all.
Who is a Good Candidate for Debt Management?
These plans tend to be the ultimate solution for those who are focused on trying to repay everything that they owe.
It is ideal for those who are able to keep up with their payments but are struggling to make ends meet at the same time.
Debt management plans give you the most benefit when your credit cards are with the original creditor, before the debts are sold to the collector.
A debt management plan will only really work if you are able to meet the monthly payments.
Overall, DMPS, or debt management plans are ideal for those who owe more than $10,000.
Canadians have actually used debt management plans to consolidate debt that is over $75,000 in the past.
What could Disqualify You?
To enrol in a debt management plan, then you need to make sure that you have a steady source of income.
If you don’t then you may struggle to make the payments every month.
If you and your counsellor are not able to work out a budget which will help you to make your payments, then you may not be able to enrol.
You also need to make sure that you have a minimum amount of unsecured debt, of around $5,000.
If you are a homeowner, then you may be asked to cash out on your equity instead of enrolling in your program.
If you have savings in your retirement plan, then you may be asked to withdraw them so that you can pay off the accounts.
Enrolling in the Program
When you have decided that you want to enrol, your counsellor will then ask you for specific information about your debts.
This could include your creditor names, your account numbers, your current balance and even your account status.
Each creditor has to agree to allow the agency to include the debt before your plan can start.
You will get an acceptance letter from every creditor as they agree to the terms of the plan.
During this period, you will have to try and make any payments on your account.
Your agency will also let you know when your plan is going to start.
What Debts Can You Include?
Debt management plans will give you some relief from your high-interest credit debt.
This includes your general-purpose credit cards, your charge cards, your store credit cards and more.
A lot of creditors will have established relationships with a lot of counselling agencies, and this means that they will let you include your debts without much resistance.
It’s also possible that you can include other consolidation debts as long as they are unsecured and as long as the creditor agrees to accept the payments through the payment plan.
This can include in-store credit lines, debts in collections and even debt consolidation loans.
You cannot include any debt that might have been secured with collateral.
Complete your Plan to Become Debt Free
When your program has started, you will need to make one payment every month to the counselling agency.
They will then distribute the payment to your creditors as it has been agreed.
The fees for this are fixed and this makes it easier for you to manage your budget.
You can also choose to work with your counselling team to try and find a payment date that is suited to you whenever you receive extra income.
When you are in the program, it’s important to know that any credit cards and lines of credit that you have will be frozen.
You will not be able to make any charges on the cards.
Your credit report will also indicate that you are making payments.
You won’t be able to open up a new credit card when you are on the program, but you may be able to get secured credit.
This could include a mortgage, an auto loan or anything else of the sort.
This will depend on your credit score and how credible you are in general.
As you make your way through the program, it is vital to know that the counselling agency will be there to help you with your budget.
You won’t struggle to live without the credit cards you have, and your agency will also be able to give you access to a range of financial resources.
This will help you to learn better habits while also making it less likely that you’ll find yourself in financial trouble in the future.
If you want to find out more, contact Bankruptcy Canada.