A debt management plan is another term for a debt reduction plan. It is an informal approach to reduce debt and to avoid a formal debt solution like a Debt Agreement or a Personal Insolvency Agreement. The purpose of any debt management plan is to reduce the burden of debt as quickly as possible.
How is it done?
The key to a successful debt management plan is in the upfront planning. There is no point negotiating a plan if you cannot afford to maintain the repayments. On the other hand, if you do not offer enough to your creditors, they are unlikely to accept your proposal. So you need to strike a careful balance between it being affordable to you and being enticing to your creditors.
This is where Get Debt Free can assist. Our personal debt advisors are experts in the field of preparing creditor workout plans and budgets. We have theknowledge and track record to help you bring together all the pieces to your personal financial puzzle.
The steps involved with setting up a debt management plan are as follows:
Step 1 – Planning
The first step is to prepare a carefully researched budget. When negotiating a debt management plan it is imperative that you negotiate a payment plan that is affordable to you and that is why a carefully prepared budget is so important. There is no point in negotiating a payment plan which you then fail to meet because you couldn’t afford it.
Step 2 – Negotiation
A debt management plan involves negotiating an affordable payment plan with your creditors. In some cases creditors will agree to reduce or freeze interest for a period of time if you can demonstrate that hardship should be given. In most cases creditors will want to see some evidence as to why hardship should be granted, like a medical certificate (in the case of long term ill health) or any other evidence which can support your case for hardship. Most creditors will not provide hardship for more than 3 to 6 months. Read more about financial hardship.
Step 3 – Execution
If your creditors accept your proposal, you will need to pay them on time and in accordance with your proposal. Creditors will quickly lose confidence in your ability to maintain a payment plan if you fail to make your payments on time. In fact many creditors will often withdraw support very quickly if you fail to make your payments on time.
What are the benefits of debt management?
The first noticeable benefit to a successful debt management plan is that the constant calls and letters from your creditors should stop which is the primary source of stress for people with debt problems. However as we have mentioned above your debt management plan will only be successful if you make your payments on time. If you fail to make your payments on time the calls and letters of demand will start again.
Informal debt management plans are often more favourable to formal arrangements, such as a part IX Debt Agreement
or a Part X Personal Insolvency Agreement
. The main benefit of an informal debt management plan is that it is not registered on any government register or your credit file. In other words the agreement is kept completely private between you and your creditors.
What are the risks
Because these arrangement are informal, your creditors will not be bound by the terms of the agreement and they may (at any time) change their minds, particularly if you are late in making payments, or worst case you fail to make your payments. In order words creditors are free to revoke the agreement and commence legal action to recover their debt. If you owe more than $5,000 to any individual creditor then the legal action could lead to you becoming bankrupt.Is it right for you?
The answer to this question will depend on your individual financial circumstances. The only way to work out what is the best debt solution for you is to speak to an expert and undertake a full financial assessment. Get Debt Free offer a free financial assessment. Only after the financial assessment will we be able to recommend the best debt solution for you.We offer advice that is professional, obligation free and delivered by our highly trained experts.Call today on 1800 98 10 70 to book your free financial assessment.