When you’re in a lot of debt and you visit a non-profit credit counsellor, they may recommend a debt management plan. Simply put, a debt management plan is a plan to repay your debts in full over a period of time. Your credit counsellor will deal with all of your creditors on your behalf and work with them to come up with a plan for you to make one manageable payment each month, which is paid directly to the credit counselling agency.
The benefit of a debt management plan is that you take full ownership of your debts and get them paid off as soon as possible. You won’t receive any more collection calls, you’ll only have to make one single monthly payment, and oftentimes you’ll pay less or no interest. This means you can avoid bankruptcy or a consumer proposal, which can have long-term negative repercussions.
Here are the key elements of a debt management plan:
Agreement with Your Creditors
One of the key components of an effective debt management plan is a beneficial agreement with your creditors. What this means is that your creditors agree to work with you and your credit counsellor on an agreed-upon monthly payment to get your debts paid off. This agreement is voluntary and not legally binding, and its effects last for as long as you are able to respect your payment plan. Sometimes you may have a creditor that is not included in this agreement.
Extended Payment Terms
Debt management entails methodical repayments of unsecured debts. One of the key characteristics of this plan means that you are allowed to pay your debts throughout an extended period of time.
Reduced or Eliminated Interest
A smart debt management program usually means that your creditors agree to reducing or eliminating the interest and fees on your debt. It is one of the greatest benefits of debt management plans. Reduced costs lead to reduced monthly payments, which would allow you to pay it off sooner.
Debt Management Counselling
You may think that you can control your debts without any help, but the truth is that it is often necessary to support your debt management plan with counselling. Good money management habits start with strong financial literacy skills and financial education. Without this, even if you pay off your debts, you may find yourself back in debt in no time. That’s why it’s important to educate yourself through credit counselling to ensure you don’t make the same mistakes again.
An Appropriate Budget
This is arguably the most important part of debt management. Creating a budget with your income and expenses can go a long way to getting you back on track. A counsellor will help you to develop a budget that helps you live within your means while you tackle your debt.
All of the measures involved in a debt management plan are focused on getting you back on track financially and reducing your debt load. In the end, it is all about creating a plan that works for you based on you and your situation. A good debt management plan is tailored to meet your specific needs.
With a debt management plan, anyone can become debt-free. It isn’t easy – it takes a lot of hard work and discipline – but it is achievable if you are willing to work for it.
Contact Credit Counselling Services of Atlantic Canada for a free consultation to learn more about our debt management plans. For over 25 years, we have helped countless individuals and families in Atlantic Canada through our debt management, credit counselling and financial education programs.