What Are the Benefits of Debt Management?
Dealing with debt? The answer to getting rid of your debt problem may very well be entering into a debt management program.
“Debt management programs (DMP) offer many benefits, but it isn’t necessarily the right solution for everyone. Before you decide which path towards becoming debt-free is for you, understand how a debt management program works and if the benefits of debt management make sense given your financial situation,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.
How debt management works
Typically, a DMP is a good fit for people with substantial debt loads who are not able to consolidate their debts on their own or attain a consolidation loan through their financial institution. It is of benefit to people who are able to make their debt payments but could use the assistance of an extended timeline and/or lower interest rates.
In a debt management program, you work with a credit counselling agency and you can consolidate many of your unsecured debts. Your qualification and payment plan is based on your income, as opposed to your credit score, which would figure in for a traditional consolidation loan.
Your trained credit counsellor will contact your creditors and negotiate a reduction or elimination of interest rates and/or charges. You then make a single payment to your credit counselling agency, which will pay your creditors on your behalf.
The length of debt management programs vary, but most of them are completed anywhere from about 30-60 months.
Do you feel like you are running out of options when it comes to your debt? Maybe a debt management program is the answer to your debt problem. Call one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.
If you determine with the help of your credit counsellor that a debt management program is the right course of action for you, here are some of the benefits of debt management that you can expect.
“One of the greatest benefits of debt management is the ease, convenience, and efficiency of rolling your debt payments into one single payment. Making multiple payments to multiple creditors is not only stressful and difficult to track, it’s also a costly way to repay your debt,” says Schwartz.
Not only do you simplify your life with a single payment, typically your payment amounts are much lower than if you are trying to pay back debt on your own. Usually, you can expect to reduce your debt payments by anywhere from 30-50 percent.
Having a single, lower payment is easier to budget for and you are able to have the most direct impact on paying your debt down every month.
Rebuild your credit
Although it ultimately depends on an individual’s financial situation, participating in a debt management program can help you to rebuild your credit by paying down your debt. If all of your debts are included in your DMP, repaying your debts in a timely manner will keep you from a credit disaster. You can get back on your feet moving forward.
A real benefit of a debt repayment program is the ongoing support that you get from your credit counsellor. They are there to support you to achieve success, which means that they will direct you to the right resources to become financially literate so you can remain debt-free in the future.
Your credit counsellor will teach you about budgeting, which is probably the most important tool that you have at your disposal to manage your money wisely and work towards achieving financial goals beyond paying off your debt. Lots of people have different reasons as to how they got into debt trouble in the first place. Very commonly it is because of a lack of budgeting. This is a real life tool that can help you stay debt-free.
Your credit counsellor is also there for you if you run into problems and are likely unable to make a payment. They will communicate with your creditors and guide you to get back on track.
Unlike some other debt relief solutions, a debt repayment plan isn’t legally binding. That means that if something changes with your income (i.e. you lose your job or get a pay cut), you are able to re-negotiate your payment plan with your creditors, via your credit counsellor.
The idea is that your payment amount should always be affordable so that you can have a decent cash flow to avoid using debt going forward.
Lower cost to you
If you are carrying debt, you are probably already keenly aware of the substantial costs that accumulating interest adds to your monthly expenses. As interest rates are reduced and even eliminated, along with finance charges and penalties, you will save a lot of money choosing this debt solution, compared to paying debt down on your own.
Pay off debts at a rapid rate
When your debts are consolidated into a single payment, more of your payment is going towards reducing the overall amount that you owe. With the support of good budgeting and sticking to your plan, you can expect to pay down your debts much more quickly than if you were struggling on your own making only minimum payments. That means that your financial goals are more attainable, in less time.
Good alternative to other debt solutions
There are other debt relief options that you can try, like a consumer proposal or bankruptcy. While these will eliminate your debt, there are long-term implications on your credit and your finances that make them a less attractive option.
A debt management program gives you the option to become debt-free while working to restore your credit.
Reduce your stress
Part of the anxiety around debt is worrying about how you are going to make ends meet and make your debt payments. Participating in a debt payment program gives you both structure and strategy that will reduce your stress.
Are you ready to become debt-free? Call us at 1-888-294-3130 or visit our free online debt analysis.