Around the world, there are millions of people in debt and the credit business is worth billions. It is no wonder why a lot of individuals find themselves with more debt than they can handle. Many people have heard of debt management plans so it is natural when you are short of money to look for free ones. The truth is that almost every debt plan is provided by a commercial company who need to be paid for what they do. They should explain their fees clearly before you sign up for anything and the usual system is that they cover their costs by taking a commission out of the monthly payments that you make into the plan.
Serious Debt Situations
If you are no good at managing your finances, you might even have to face the prospect of filing for bankruptcy. However, this should only be looked at as a last resort. Prior to actually filing for bankruptcy, you need to exhaust all the options that you have because there is no turning back once you declare this as the status of your finances. If you will not file for bankruptcy but you find out that your debts are more than what you can afford to pay, there are several alternative solutions that you can go for. There is applying for the Individual Voluntary Agreement which is offered to UK residents.
For this, up to about 75% of your debts can be written off, although there are certain conditions that need to be met. Another option is to take out a loan to pay for the debts that you owe. Called debt consolidation loans, this is recommended only those who are adept enough at handling their finances in such a way that they will not fall in a second debt trap where interests pile up and they are usually left with no choice but to file for bankruptcy.
Finally, there are debt management plans that you can opt for. Let us take a quick look at what happens when you for this option. As the name implies, debt management is a debt repayment plan which is specifically designed for individuals who find themselves with more debt than they can handle. Instead of having to pay several loans with interest rates piling up per month, you can consolidate all your debts and only make one payment per month.
The Pros of Debt Management Plans
You can go online and look for good debt management companies or follow recommendations for the best companies. The good thing about taking advantage of debt management plans is that the representative from the company will be the one to get in touch with the creditor to arrange for lower payments to be made.
Aside from reducing your debts in such a way that the monthly payments become more affordable and easy to pay, charges and interest rates can also be reduced. The representative from the debt company can even put a stop to harassing calls from your creditors. All in all, debt management plans are there to provide an alternative to filing for bankruptcy if you find yourself with more debt than you can actually handle.
The Cons Of Debt Management
Just like any other financial decision for those who are considering filing for bankruptcy, there are a few disadvantages that you need to be aware of before going for debt management plans. Take a look at the following list:
Most debt management plans are provided by commercial companies. This means that in order for them to keep their business afloat, they do need to charge something for their services. As such, the offer of free debt management plans is unlikely to be genuine. The supposedly free services provided by some organisations may have payments in the form of hidden monthly charges. So before taking advantage of any type of debt management plan, make sure that you are aware of what the fine print says.
After weighing the pros and cons of free debt management plans, do you think that it would still work for you? If yes, then make sure that you are mapping out every step that you will take for your application for a plan.
At the end of the day, steering clear of debt is still the best way to prevent having to face the prospect of bankruptcy in the first place. But if circumstances lead you to such a financial situation, make sure that you consider all the other bankruptcy alternatives first because it will stay on your credit record for seven to ten years, and also affect your purchasing power as a consumer.