How can speaking to a credit counsellor benefit you?
If you can not meet your monthly financial obligations, consider speaking to someone that can offer help.
- Are you making your monthly minimum payments, but your funds are going to high interest rates 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.
Credit counsellors may provide debtors (people who owe money), alternate ways to pay off their debts.After being declined for a consolidation loan from the bank, there are bankruptcy alternatives.Positive changes to your life will occur faster than you realise.
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 commits to making a fixed monthly payment, and in return the creditor grants interest relief.A program usually runs up to about 54 months or less, at the end the client is debt free.
The payments from the debtor are consolidated into a single monthly payment and a prorated payment is made to each creditor.The outcome is less to organise 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. This subject is for another article, but just to prove my point, one client we spoke with didn’t realise that by the time she finished off paying her high rate loan over 4 years, she would of paid double the loan amount.
Creditors of unsecured debts do not like the idea of debtors going bankrupt.The unsecured creditors get even portions of what funds remain after the fees and secured creditors are paid.Getting interest relief (lowered or stopped interest altogether) means the debtor will be able to fully pay off their financial obligations. 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.
What are the downsides to a Debt Management Program?
After the last payment on the debt, it will remain on your credit report for up to 3 years.Currently, Equifax keep this for 3 and TransUnion for 2. The account is represented as an R7. The ratings are on a scale from 1 to 9.1 means the account is up to date and 9 is the worst meaning a bad debt or bankruptcy.An R7 rating shows the debt paid in full with help from a debt management program.
Until they understand the savings and financial freedom, people do not like the prospect of having R7s on their credit report.Living with a high debt to income ratio drastically reduces ones credit score.This means the amount of your salary already committed to your current debt load. Having some R7 ratings, and being debt free at the same time suddenly seems a little more attractive.
The debtor has to agree to applying for more credit. Not having a credit card for a lot of people is a difficult task.Credit cards are convenient.Airline ticket, car rentals and any purchase over the internet demonstrate this.Applying for a secured credit card is a great alternative.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. Carrying debt really isn’t a good way to live. It causes stress at home and prevents a person from enjoying life, as they should.
Programs like this are not a game and should be treated with respect. Credit really isn’t a right, and it should be treated with care.We have all seen changes in our life that happen at any time without warning. Job losses, health problem and economy fluctuations are out of our control.Being prepared for life’s hiccups is vital.
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