Debt management plan-pros and cons is very important to understand before making financial plans. As much as debt management plan seems like a great idea, it also comes with its drawbacks. Debt management plan works out depending on your financial goals and situation.
Your level of income, savings and superannuation plans also comes into factor about debt management plan-pros and cons consideration. Struggling with debt management isn’t new. To deal with your credit debts and all other debts that are pending, you need to find options and speak to a qualified financial advisor. Your debt management plan can be efficiently curated with effort and time when discussing with an expert. Since there are so many solutions available in the market, a financial planner will rightfully choose the option that is most suited to your financial condition.
Debt management plan-pros and cons
debt management plan- pros and cons, is a full package to understand what’s right for you. A debt management plan is a negotiation between the creditor and the borrower. In a debt management plan, the creditors accept low monthly payments from the specific borrower. This process goes over for an extended period.
The option for freezing the interest of the borrower is also available. Other than interest, the borrower may consult with the creditor to freeze their penalties and extra charges which poses a burden on the financial situation.
Debt management plan-pros and cons is crucial for anyone dealing with debt, since it’s not a legally binding solution. Debt management plan do affect your credit scores; however, they do not appear on public registers.
PROS of debt management plan
Since every good plan has it’s ineffectual sides; a debt management plan is no exception. Debt management plan-pros and cons play a great role to invest on your finances. It may or may not work for you. The only way to know if the Debt management plan will work on your favour is by figuring out your expenses.
Let’s look into the detailed advantages/ pros of a debt management plan.
Affordable monthly payment
Suppose you owe money to multiple creditors, in such a case, Debt management plan works just right for you. DMP will help you to merge all your credits into one payment and will make it hassle-free for you. Since the repayments are made into a fixed monthly payment scheme, you do not have to worry about running from one creditor to another.
Borrowers have the upper hand when they receive the debt management services. The services typically help the borrowers to submit their payment to the assigned agency, which then gets disbursed on their behalf.
This service also allows you to stay free from any track, whether its date or day. Everything is taken care of!
Less risky for your credit score:
Debt management is an informal plan; however, they do affect your credit score from time to time. When you decide on paying less towards your debts every month, the payment will be recorded on your credit file.
In the long run, the credit filing creates a good impact on your credit score. DMP also indicates that you take responsibility for your finance charges. Resorting to bankruptcy can affect your credit score in a negative way; hence DMP is a right solution.
End to creditor harassment
DMPs provide much relief from creditor harassment and intimidation. Often you keep getting phone calls from your creditors asking for repayments and other processes. This can be super annoying, and no matter how much you tell them your approach, they will keep bugging you.
Debt management plan helps you to get yourself out of this harassment. Since you have to contact a debt management agency and stay under their service, creditors will always have to contact them for any information.
All the negotiations and correspondence is taken care off by DMPs and the agencies on your behalf. So this helps you not to feel pressured.
Less monthly payments:
With a debt management plan, the biggest pro is that you can pay your debt with less interest rates. Your creditor can freeze charges for you, which ultimately results in decreased monthly payments. A DMP can take more than ten years, so if you’re planning to sign up, make sure you’ve read all the policies and is prepared to keep on paying for an extended period.
Cons of debt management plan
Rejection of DMP proposal
Debt management proposal can only come into effect if all your creditors agree with it. This can be a problem to a lot of borrowers. DMP might not be the perfect solution for you if your proposals or objectives get denied by the creditor. In such a case, you may have to face a lot of problems during the period of debt management. Since a lot of things are not under your control, if your proposal for a debt management plan gets rejected, you have to seek alternative solutions.
The rules differ for every other insolvency options such as trust deeds. If your proposal is not taken into account, you can have trust deeds or IVAs as your notable alternatives. The benefit of trust deeds is that, your creditors are bound by it if they accept a certain proportion.
DMPs are quite expensive:
Compared to other solutions, DMPS do come off a bit expensive. It can be more costly than other debt solutions. They’re not suitable for everyone as there are specific rules and regulations that you have to go by.
As you have to pay the full debt over a fixed term. You have to repay what you owe. However, with other debt solutions such as individual voluntary arrangements or IVA, you can get at least 90% of the debt cut off.
Unlike other debt solutions, DMPs require you to hire debt management agencies which are another burden over your shoulder. Debt management agencies charge you for an appointment or services that you take from them. So ultimately, it is adding up more to your expense list.
DMPs are an informal solution:
DMPs, as mentioned earlier, are not legally binding. Hence it is not a solution that you can look up to have your finances formally backed up.
As DMPs are not legally binding, creditors can choose to cease correspondence with you. There are also risks that your creditors can opt-out of the plan anytime, and you cannot sue them.
Creditors may choose not to freeze your interest:
There’s no guarantee that your interests will freeze. Although most creditors try their best to do so, they do not give 100% assurance.
There is no legal obligation to deduct the charges or freeze your interest; hence, you might not get an approval for your credits.