The Various Plans to Deal with Debts
Before delving on what a debt management plan can do for you as an individual or as a business, it will be good to decide its scope. It is a misconception among many people that debt management plans can only be used for eliminating the existing mound of debts. Nevertheless, debt management plans have an extended scope. As the name suggests, debt management plans may be used with advantage to manage the debts to a particular level. It must be acknowledged that a proper management of debts makes debt consolidation and other methods employed to fight the menace of debts superfluous. Prevention is better than cure. Most of us repeat the adage incessantly. It will be through debt management plans that one can really develop the habits in ones life and dealings.
However, the role played by debt management plans in working with the debts already incurred may not be discounted. Many people owe their financial survival to the debt consolidation loans that helped them counter bankruptcy and other debt related problems.
The author has tried to illustrate the preventive as well as defensive uses of debt management plans through this article. Since the defensive part of the debt management plan is more widely used, we will first discuss the various plans to deal with debts that an individual or business has already incurred. The various debt management plans that come in this category are as follows:
•Debt consolidation loans
The most conventional method of dealing with debts is debt consolidation loans. Debt consolidation loan is essentially meant to arrange easy finance for clearing the mound of debts. A single loan is drawn after consolidating the various debts. One aspect that distinguishes debt consolidation loan from other loans is that the borrower gets help and guidance from the debt consolidation loan provider in the settlement of debts. Expert negotiation skills and a proficiency in debt settlement recommend the services of the debt consolidation loan provider in this regard.
•Debt consolidation mortgage
Debt consolidation mortgage constitutes a major part of the debt management plans. A debt consolidation mortgage is basically a second mortgage. In this method, the borrower requests the mortgagee who holds the first mortgage to the home to repay his debts. In exchange, the borrower includes the debts while making the monthly repayments. The advantage of the debt management plan is that finance is available for debt consolidation at rates equivalent to a mortgage, i.e. at cheap rate of interest.
•Debt consolidation through remortgage
While debt consolidation mortgage entails dealing with the same mortgage lender, debt consolidation through remortgage involves shifting to a mortgage lender who offers a better rate of interest. In this debt management plan, the borrower or the mortgagor requests the new mortgage lender to include several debts along with the unpaid amount on the original mortgage for disbursement. Again, this will help the borrower get cheaper finance for debt consolidation at the rates of a mortgage.
•Debt consolidation through credit cards
Credit card as a debt management plan will be especially useful when the debtor wants a quicker settlement of debts. As in loans and mortgages, a credit card user need not wait for the debt management plan to be approved and sanctioned. Another advantage of credit cards as a debt management plan is that borrower is not required to pledge any of his/ her assets to back the loan. This can however be too expensive for the credit card user.
•Debt consolidation through home equity loans
Home equity loan is a secured loan taken against the equity in ones home. Home equity loans put a convenient method of debt settlement. A home equity loan is a multi-purpose loan that can be used with equal advantage whether in a debt management plan or for making home improvements. Since home equity loan is secured, it provides cheaper finance. However, the borrower needs to be regular in making repayments to protect his house from repossession.
•Debt consolidation through debt settlement
This form of debt management plan involves associating with a debt settlement company. The debt settlement company undertakes to repay the debts while the debtor repays the amount through small monthly instalments to the debt settlement company.
As discussed above, the preventive methods are equally important tactics employed to avert the occurrence of debts. Debt counselling aims to impart debt management training to individuals as well as businesses. People are taught the manner in which to manage their revenues. Many of the tips provided as a part of the debt counselling techniques are time worn. The aim of debt counselling is not to recall these techniques, but to help people through innovative ways and means to employ these techniques in their life.
The defensive debt management plans having repaid the debts, do not give sufficient guarantee of the menace of debts not raising its head again. There is a need to end the cycle of the debts, and the preventive part of debt management plans will be especially helpful on this count.
Debt Settlement Tips
Debt consolidation and debt settlement are two prominent ways of debt reduction. These two methods have always been in contention over the relative significance of one above the other. However, market statistics say that debt settlement has always scored slightly above the debt consolidation process. Debt consolidation programs help you consolidate your outstanding loans and thereby heave you out of debt by making your payments out in a more systematic and disciplined manner. The in-debt life is bad because the debt rarely ceases and you do not really get to live a debt-free life for a significant amount of time. Debt settlement programs act as your saviors when you see yourself floating towards bankruptcy. Debt settlement is a good choice for people who are already knee deep in credit and have loads to pay back. By going in for debt settlement, you can not only improve your credit rating, but also stabilize your financial basics.
People with a bad credit history will appreciate a new status wherein they are debt free finally and you are once again looked up in consideration by your creditors. Debt consolidation can help people add a bit to their savings and in parallel reduce the amount and overhead that goes in to pay back the creditors. The endeavor is to become debt free as early as possible. You should be very careful with the debt consolidation loans so that you are able to extract the maximum benefit out of these loans. You should be careful about paying back the debt consolidation loan in time because a stretched consolidation loan will only add to the financial burden and the debt relief purpose will get defeated. There are many financial organizations that advertise low interest rates and attractive debt consolidation packages, which lure many consumers to jump into taking out a debt consolidation loan.
If not taken up sensibly, a debt consolidation loan can aggravate the current financial ruckus into a more serious situation. Debt consolidation is all about securing a lower interest rate. A debt consolidation loan brings down the total number of bills that you need to pay every month by clubbing together all the outstanding loans under a single head. You will need to make a single payment out every month which goes at a pre-negotiated interest rate. Negotiating the interest rate is of paramount importance because if you go in for a sub-standard interest rate, you will end up paying more money in the longer run that what you initially borrowed. There is another hazard involved in taking up a debt consolidation loan. People can start feeling as if they have no debt burden and may return to their old spending habits. This act can play havoc with the stabilizing financials and should be avoided on all costs.