Is a Debt Management Plan Right For You?
One debt on its own is easy enough to manage.
But comparatively few Canadians have just one source of debt.
In an era of historically low interest rates, many of us have grown up with easy access to seemingly affordable credit.
As such, we’ve become accustomed to relying on credit cards and loans to help us out when unforeseen expenses arise.
As such, debts have developed a tendency to pile up to the point where the average Canadian household shares a staggering $20,759 in non-mortgage debts.
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Missing a single payment on just one of these debts can result in an avalanche of unpleasant consequences including charges, threatening letters, unwelcome phone calls and negative consequences for your credit rating.
But as your debt places a stranglehold on your household cash flow, missing payments may seem like an inevitability.
Fortunately, a Debt Management Plan from a trustee can help you to take control of your debts and improve your household finances.
What is a Debt Management Plan?
A Debt Management Plan is a form of debt relief that works in a similar way to a Debt Consolidation Loan.
If you have multiple debts across several creditors, it helps you to merge them into a single repayment with just one rate of interest.
In some cases, a Debt Management Plan allows debtors to eliminate interest entirely, so that they only pay down the principal.
If you’ve previously only been making the minimum repayments on your credit cards, this may mean that you pay off your debts much more quickly even though you’re paying the same amount (or even less) every month.
There are numerous private and non-profit organizations which can help to put together a Debt Management Plan on your behalf.
They will even negotiate with your creditors so that you don’t have to undergo the stress that this entails.
Will my creditors agree to a Debt Management Plan?
It’s hard to answer this definitively here.
It really depends on how much you owe and to whom.
However, many creditors are amenable to the idea of a Debt Management Plan.
90% of debtors who enter into a plan end up making their payments every month and repaying their debts in full with no further problems.
So it’s easy to see why they would be appealing to creditors who know that their debtors might miss payments or struggle to make minimum payments without one.
Businesses need to make accurate cash flow projections, and many will happily take a hit on interest rates if it means that they can count on their debtors making regular repayments under a plan.
Can my creditors back out of a Debt Management Plan?
A Debt Management Plan is a voluntary arrangement that your creditors enter into of their own free will.
As such they can, theoretically, back out at any time for any reason (or even no reason at all).
However, while they can do this, as long as you meet your obligations under the plan, it’s very unlikely that they will.
Will a Debt Management Plan stop wage garnishment?
There are some circumstances where a creditor may take their monthly repayments directly from your employer before they give you your salary.
If you are self employed, they can even approach your own debtors for payment before the remainder is passed on to you.
This is known as wage garnishment.
A Debt Management Plan will not automatically end wage garnishment.
However, that’s not to say that your creditors won’t be amenable to the idea of ending wage garnishment if they enter into a plan with you.
This is something that can be negotiated as part of the terms of the plan.
Are there any debts that a Debt Management Plan won’t cover?
A Debt Management Plan can be an effective solution for the majority of commercial debts.
However, there are some circumstances where a debtor will never entertain a Debt Management Plan.
These include government debts such as CRA payments or student loans.
Will a Debt Management Plan affect my credit rating?
While a Debt Management Plan will have a less profound impact on your credit rating than, say, a Personal Bankruptcy it will have a lasting impact.
You can expect a plan to show up on your credit rating for 2-3 years after it has been repaid.
Is a Debt Management Plan the right option for you?
A Debt Management Plan can save you a small fortune in interest and see you completely debt free within 5 years.
It’s a great way to take control of your debts, put an end to the stress and anxiety that come with threatening letters and phone calls and regain the disposable income which will allow you to start saving once again.
What’s more, because you only have one monthly payment to keep track of, it’s far easier to budget effectively.
However, there are some circumstances where a Debt Management Plan is not appropriate.
If you have over $10,000 in debt or have more than a few creditors, you may find it difficult to get your creditors to agree to such a plan.
Are there any alternatives to a Debt Management Plan?
The good news is that there are lots of alternatives to a Debt Management Plan that may be used to liberate you from your household debts.
A Consumer Proposal, for instance, may allow you all the benefits of a Debt Management Plan while freezing interest altogether and writing off up to 80% of your principal debt.
It can also be leveraged against government debts.
Alternatively, filing for Bankruptcy can give you a fresh start when your debts have become too much for you to manage.
You can see a comparison between Consumer Proposals and Bankruptcy here.
We’re here to help you to find the right debt relief solution.
For over 20 years, we’ve been helping Canadians from all walks of life to liberate themselves from their debts.
Want to know more?
Get in touch with us today on (877)879-4770 to arrange a risk-free, zero-obligation and completely confidential callback.