Can’t get a consolidation loan? Try Debt Management
Saturday, November 14th, 2009 Subscribe To Our Feed
How can speaking to a credit counsellor benefit you?
You should consider speaking to an expert when you are struggling to meet your monthlt commitments.
- Are you making your monthly minimum payments, but your funds are going to high interest rates and not the principle debt?
- Are you simply overstretched and can’t afford to pay all your creditors (people you borrow money from i.e. Credit cards, payday loan etc)
A good Credit Counsellor will review your financial situation carefully and advise you on what you can do to start getting debt free.
Talking to a credit counsellor may open doors to avenues not considered before by the debtor (the person who owes money).Getting declined for a consolidation loan does not mean you should look towards bankruptcy. There are alternatives.Positive changes to your life will occur faster than you realise.
What is a Debt Management Plan?
Debt Management Plans (aka. Consolidation Plan), is a payment program that both the debtor and creditors agree to.The debtor signs a contract promising to pay a regular monthly payment, and the creditor will grant the debt an interest relief status.Program duration is anything up to 54 months in Canada, making the client free from all unsecured debt at the end.
The debtor makes a consolidated monthly payment, which is then prorated out to the creditors.The outcome is less to organise for the debtor.The debtor then only has to manage a single monthly payment.
Interest Relief
The secret to getting debt free so fast on a debt management program is the interest relief.More commonly, people are unaware of how the high interest rated effect them with instruments like credit cards or personal loans.Interest really should be written in another article, but to prove a point one lady we just recently helped had a load that would of cost her twice the origional amount.
Creditors never want to see their debtors filing for bankruptcy.Unsecured creditors are left with very little after the bankruptcy is finalized.Obtaining interest relief means that the debtor is finally able to pay off the principle debt.Then the cycle could start again meaning they are then available as customers to the creditors again! Hopefully anyone going through a debt management program learns his or her lesson.
Debt Management Programs and the negatives?
All the debts on the program remain on your credit report for at least 3 years after they have been paid off.Currently, Equifax keep this for 3 and TransUnion for 2.The debt will then be shown as a R7 rating.The rating scale is from 1 to 9.1 is the best and means that there are no missed payments and 9 is the worst like bankrupt.An R7 means the debtor used the service of a debt management program to pay the debt off in full.
An R7 on your credit report is not so bad when you realise the bigger picture of financial freedom.Your debt to service ratio impacts your credit score immensely. This basically means, how much of your monthly income is already assigned to outstanding debts. Having some R7 ratings, and being debt free at the same time suddenly seems a little more attractive.
The debtor has to agree to not applying for more unsecured credit.Losing the access to a credit card makes life hard.Using plastic to purchase items makes life easier.Car rentals and purchasing items on the Internet examples of this. A great alternative for this is getting a secured credit card.Secured credit cards will allow you to improve your credit score while on a debt management program.
Summary
A debt management program is really a great alternative when you have been declined a consolidation loan. Carrying debt really isn’t a good way to live.It is a leader in the reason why families will split up.
There is of course a valuable lesson to be learnt from a program like this. Credit really isn’t a right, and it should be treated with care.We have all seen changes in our life that happen at any time without warning. Job losses, health problem and economy fluctuations are out of our control.Although hard to do, being prepared for life’s mishaps is a good policy.
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