Millions of people are discovering that their debts have become a significant issue, as the effects of many years of readily available credit begin to bite. Additionally, there are many companies who promise to solve all of your debt worries, slashing your payments and clearing your debt entirely in a couple of years. Is this too good to be true?
First, we will need to discover just what debt management is.
When you sign up with a debt management firm, they will take over the servicing of your debts in return for a fee. Rather than having to keep up with all of your payments to a lot of creditors, now you can create one payment to the management company that will split it between the companies that you owe money to. This in itself may be a great burden off your mind, since the stress of keeping an eye on your repayments is eliminated, but a debt management program can provide more than that.
Your supervisor will contact your creditors and explain your debts are unsupportable, and attempt to agree a new repayment schedule which you can better manage. They will also try to acquire the interest payments on your debt suspended, so that more of your money goes towards clearing your debt as opposed to simply keeping on top of it.
In some instances, they may also have the ability to receive previous interest rates cancelled, reducing the whole amount you owe, but this will depend on how elastic your lender is ready to be. If the alternative to agreeing a less expensive repayment is bankruptcy, once the creditor will find no repayments in any respect, then most will be delighted to negotiate.
So far, so good. Your debts will be reduced, your worries will be eased, and you can look forward to a debt free future. Needless to say, it’s not that simple, and you want to keep in mind the drawbacks of debt management before embarking on it.
Primarily, entering a program will effectively involve tearing up the credit arrangements you have signed with your creditors. Despite the fact that you will be agreeing new provisions and sticking with them, this will leave a significant black mark on your credt score. However, this may not greatly concern you – people with severe debt problems generally have impaired credit ratings as payments have been missed or debts defaulted on.
More seriously, even though some charities will provide debt management free of charge, private companies will charge a commission that can in certain cases be a considerable one. Beware of companies promising to fix your problems immediately – they could be trying to take advantage of people when they are vulnerable. Shop around to find out what fees you will be charged before registering.
To sum up, debt management may provide a solution to significant debt issues, cutting your payments and relieving stress, but it’s consequences for your future credit value, and care has to be taken in picking a business or organisation to join with.