Using plans to pay off debt is a tried and tested system that works very well for many people. Structured plans provide a simple system that allows people to take back control of their debts and gradually become debt free again. There is more than one type of debt plan available and this article will explain what the differences are between them and how they should be used.
There are two main types of plan that are commonly used to pay off debt. The ones in most frequently use in both the US and the UK are debt management plans, which involve a process sometimes referred to as debt consolidation. This is a plan that enables you to consolidate all your debts into one more manageable monthly payment. There is no additional borrowing involved in this, just a renegotiation of the terms of your debts.
The debt management company that you use to set up the plan will negotiate with all your creditors to make new arrangements for paying back what they are owed. This will normally mean that there are reductions in interest charges or other late payment fees. The results of these changes mean that your debts become affordable and you are then able to repay all that you owe.
The other type of plan that is used to pay off debt is referred to as debt settlement. This is also known as debt negotiation and involves a negotiated settlement with creditors to write off part of the debt. This is an approach that is used to deal with very serious debt problems, where the person probably would not have enough surplus income to be able to afford the payments on a debt management plan. It is often a route chosen by people in a real debt crisis as an option which is far more preferable than the usual alternative of filing for bankruptcy.
When you use debt settlement to pay off debt, you make a payment every month into a holding account instead of paying anything to your creditors. An experienced negotiator will contact all of your creditors with view to coming to agreements to settle each debt for a reduced amount, generally in exchange for paying the rest in a lump sum. A good negotiator ought to get reductions of up to 60% off your debts, which is what then makes it possible for you to deal with the balance and eventually become debt free. The amount you pay into the new account is saved up and used towards the settlement payments as new deals are reached with each of your creditors.
It is worth mentioning that UK residents will not come across debt settlement as there is a good alternative that is only available in the UK. This is an individual voluntary arrangement, commonly known as an IVA. These are formal agreements which also result in a single affordable payment and a large part of your debts being written off.
The advantages of both debt management and debt settlement (and IVAs) [...]
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Pay Off Debt Plan – Advice On Using A Payment Plan To Pay Off Debt
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Free Debt Advice: as Good as Anything Costly
There is a general tendency to treat the free things with negligence. It is thought that all the things that come after long, tiresome effort are fruitful. Well, there is no doubt that something achieved by hard labour is certainly sweet and worthy. But this does not mean that all those things that come for free are useless. Free debt advice can be taken as an example. It is free yet highly effective in sorting out debt problems.
It cannot be claimed that all the agencies that provide free debt advice are to be relied on; nor is it true that the suggestions offered by any agency free of cost are of no use. Much depend upon the way you implement the solutions suggested by them. An advice that you come by without paying any single penny may be as good as the one that is bought with handsome amount. But to reap in the benefit, you have to execute the advice well.
That is why the problem is not over only after you get a free debt advice. You have to make clear cut plans as to how to put the advice in to use properly. In this regard, you have to make some changes in your budget, if necessary. May be you have to go for some cost cutting and leave the idea of doing some shopping in near future. In short you have to prioritise your needs and meet the ones that are highly important and cannot be left.
What is necessary is that one needs to have a fair knowledge of debt management plans and the way they work. Every agency that offer free debt advice will suggest some plans. They will also explain properly how it works and what it will do to sort out your debt problem. Yet, it is better if you update yourself with relevant knowledge so that you can understand if any one tries to dupe you with any unsuitable plan.
Debt Advice in the Credit Crunch
Who needs debt advice? According to the PricewaterhouseCoopers (PwC) Credit Confidence survey, 27% of UK ‘credit customers’ are concerned about their ability to repay debts in the future. 16% are already struggling to repay their current debts – but ‘relatively few’ are willing to cut down on their everyday expenditure, or consolidate or restructure their debts.
PwC’s ‘Precious Plastic 2009 – Consumer credit in the UK’, the firm’s annual commentary on the consumer credit market, looks at how the UK consumer finance market is being affected by the credit crunch, the problems in the banking sector and the downturn in the global economy.
Among many other subjects, the report looks at the UK’s dependency on unsecured borrowing, and the growing trend of using bank overdrafts ‘to bridge the gap between living expenses and income’.
It adds that this is ’set alongside an apparent reluctance among many UK households to either moderate their spending habits or restructure existing debt to make it more affordable’.
”Many people who really need debt advice may be unlikely to ask for it,” said a spokesperson for Debt Advisers Direct. “When someone contacts a debt adviser, they’ve effectively taken the first step – they’ve realised they have a debt problem. Of course, the sooner they do this, the easier it is (in general) for them to get the debt help they need to sort their financial problems out.
”If someone contacts a debt adviser when their debts are just starting to get out of hand, they may find it’s relatively simple to regain control. They might need to make a few sacrifices, cut back on spending, miss out on a holiday, etc. On the other hand, people who wait until they’re on the threshold of financial disaster may find they have very few options left.
”The important thing is to approach a professional debt adviser who understands the ‘ins and outs’ of debt: everything from the different kinds of debt that exist (and the different rights and responsibilities that go with them) to the types of legal action that a borrower can face if they fail to repay their debts as agreed.
”At the same time, a professional debt adviser should be able to advise on the various debt solutions that can offer people a way to pay back their debts at an affordable rate.”
As the PwC report states: ‘Individuals in financial difficulty and facing possible bankruptcy need to obtain the best possible advice on the increasingly wide variety of options available to them such as IVAs [Individual Voluntary Arrangements] and DMPs [Debt Management Plans], taking in the threat of charging orders along the way.’
”Of course,” the Debt Advisers Direct spokesperson concluded, “in today’s rapidly changing economic climate, it’s difficult to know to what extent credit (and therefore debt solutions such as debt consolidation / remortgaging) will be available in the future. Yet, as ‘Precious Plastic’ points out, it seems UK consumers ’still do not fully understand the probable long-term impact of the market turmoil’ – only 21% of the respondents in the [...]
