Any Canadian who watches television is subject to a constant barrage of commercials touting a host of debt solution options, one of which is the Debt Management Plan.
If you are one of the literally thousands of Canadians faced with more debt than your income can handle, is this an option you should consider.
Exactly what is a Debt Management Plan and what are its advantages and disadvantages? What is a Debt Management Plan? The basics of a Debt Management Plan boil down to this - a Credit Counselor negotiates a deal with your unsecured creditors to allow you to pay them back over an extended period of time through smaller payments made directly to the Counselor.
In most cases the deal also includes reduction in the interest rates you are currently paying.
Creditors are to receive regular, but smaller, payments directly from the Counselor over time, not from you.
This plan only works if your total debt is low enough to be paid back in a 3 - 5 year time period with those single payments.
The Credit Counselor you hire will assess your financial situation and come up with a total monthly payment you can afford assuming the elimination of your current payments towards unsecured debt.
If your income is too low or your debt too high to enable full repayment in the time allowed, you don't qualify and must look for another solution.
Advantages of Debt Management Plans There are several, the first of which is you will repay what you owe faster than if you pay it back on your own.
Do the math and you'll figure it out - your interest costs are reduced so most of your payment, and in some cases all of it, goes directly toward the principal you owe.
Second, you don't have to include all your unsecured creditors as you do with all other debt management solutions, including personal bankruptcy.
Third, of all your options, Debt Management Plans have the least negative impact on your credit rating.
Fourth, you may have more disposable income left at the end of the month since the single payment you make to the Credit Counselor is generally lower than the combined total you were paying before.
Fifth, if find it difficult talking to your creditors on your own, you won't have to anymore.
The Credit Counselor takes care of the negotiations and payments.
Disadvantages of Debt Management Plans The final advantage can also be a significant disadvantage.
You're relying on the counselor to protect you from your creditors.
Suppose the Counselor you hire is one of the many scam artists operating in the market in these troubled economic times and doesn't communicate with your creditors? Suppose the counselor merely sends out letters informing the creditors of your enrollment in the plan but doesn't follow up to ensure the letter got to the right place and the creditor accepts the plan? Suppose the creditor fails to make timely payments to some of your creditors? This leads us to the single biggest disadvantage of Debt Management Plans - no legal protection from collection activity.
If any of the above happens to you; or if your creditors simply get tired of waiting and change their minds, they can come after you in a variety of legal means to attempt to collect what they are owed.
There are options that do provide legal protection, including both an Orderly Payment of Debts in the Provinces of Alberta, Saskatchewan, PEI, and Nova Scotia as well as the Consumer Proposal, available anywhere in Canada through a Licensed Bankruptcy Trustee.
If answering the question of what is a Debt Management Plan leads you to believe it's not the best solution for you, look into these other alternatives.
If you are one of the literally thousands of Canadians faced with more debt than your income can handle, is this an option you should consider.
Exactly what is a Debt Management Plan and what are its advantages and disadvantages? What is a Debt Management Plan? The basics of a Debt Management Plan boil down to this - a Credit Counselor negotiates a deal with your unsecured creditors to allow you to pay them back over an extended period of time through smaller payments made directly to the Counselor.
In most cases the deal also includes reduction in the interest rates you are currently paying.
Creditors are to receive regular, but smaller, payments directly from the Counselor over time, not from you.
This plan only works if your total debt is low enough to be paid back in a 3 - 5 year time period with those single payments.
The Credit Counselor you hire will assess your financial situation and come up with a total monthly payment you can afford assuming the elimination of your current payments towards unsecured debt.
If your income is too low or your debt too high to enable full repayment in the time allowed, you don't qualify and must look for another solution.
Advantages of Debt Management Plans There are several, the first of which is you will repay what you owe faster than if you pay it back on your own.
Do the math and you'll figure it out - your interest costs are reduced so most of your payment, and in some cases all of it, goes directly toward the principal you owe.
Second, you don't have to include all your unsecured creditors as you do with all other debt management solutions, including personal bankruptcy.
Third, of all your options, Debt Management Plans have the least negative impact on your credit rating.
Fourth, you may have more disposable income left at the end of the month since the single payment you make to the Credit Counselor is generally lower than the combined total you were paying before.
Fifth, if find it difficult talking to your creditors on your own, you won't have to anymore.
The Credit Counselor takes care of the negotiations and payments.
Disadvantages of Debt Management Plans The final advantage can also be a significant disadvantage.
You're relying on the counselor to protect you from your creditors.
Suppose the Counselor you hire is one of the many scam artists operating in the market in these troubled economic times and doesn't communicate with your creditors? Suppose the counselor merely sends out letters informing the creditors of your enrollment in the plan but doesn't follow up to ensure the letter got to the right place and the creditor accepts the plan? Suppose the creditor fails to make timely payments to some of your creditors? This leads us to the single biggest disadvantage of Debt Management Plans - no legal protection from collection activity.
If any of the above happens to you; or if your creditors simply get tired of waiting and change their minds, they can come after you in a variety of legal means to attempt to collect what they are owed.
There are options that do provide legal protection, including both an Orderly Payment of Debts in the Provinces of Alberta, Saskatchewan, PEI, and Nova Scotia as well as the Consumer Proposal, available anywhere in Canada through a Licensed Bankruptcy Trustee.
If answering the question of what is a Debt Management Plan leads you to believe it's not the best solution for you, look into these other alternatives.
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