Saddled with debt that seems to be overwhelming you? Then get yourself to a credit counselor. A credit counselor will sit down with you and you can tell him about your debt situation. He’ll then talk with your creditors and prepare something which is called a ‘debt relief plan’ (more commonly known as a debt management plan), to help you plan debt relief goals and strategies.
What is a debt relief plan?
A debt relief plan is a method being used in many countries to plan debt relief and pay off unsecured debts (which have gone beyond your control in the sense that payments are not on time, and due payments are taking up a large chunk of your income or even, in some cases, exceeding it) that involves listing all your debts, assessing your potential income, and negotiating a lower interest rate or even lower due payments from the lenders, based upon the fact that there is a higher chance that the creditors will be able to recover their due payments based on this debt relief plan.
How does a debt relief plan work?
A debt relief plan is an arrangement with the creditors, whereby you’d be using the services of a free Debt Management organization (sponsored by the creditor) or a private debt management company, accepting the terms of the proposal written on behalf of you, which can be accepted by the creditor at his discretion. A good debt management company will make you pay only what you can afford after your main expenses (utilities, food, rent, etc.), no matter what.
Private debt management companies generally charge a certain amount of fees before they start providing the service, generally known as an ‘administrative charge’, and will then charge a certain percentage of the amount being paid to the creditor. Therefore, the more the debt management company gets you to pay your creditors, the larger the fees they get. This may be disadvantageous to you as you could possibly use that money to actually pay off your debts. . However, most debt management companies have ‘creditor liaison’ departments, whereby they can get the creditor to pay them some fees as reward for getting some payment in for them.
What kind of debts are generally there in a debt relief plan?
Generally, people who engage the services of a debt management company will plan debt relief services around unpaid, unsecured debts such as personal loans, bank overdrafts, credit cards and store cards. Reduced monthly payments cannot be obtained for secured debts such as mortgages, car repayments, rent, utility bills, etc.
Impact on your credit rating
Participation in a debt relief program will not damage your credit rating. Your credit rating may already be damaged by your earlier inability to pay on time, or non – payment of the correct amount.
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