Most people will have heard of a debt management plan before. About 5 years ago, it was one of the most popular debt solutions out there, with plenty of major advertising campaigns based around them. However, do you actually know what it is and what happens when you are in a debt management plan?
What is a debt management plan?
A debt management plan is an informal agreement between you and your creditors (people you owe money too) to pay off your debts over an extended period of time, with regular affordable monthly payments. A debt management plan is useful when you are struggling to make payments towards your debt each month. This is because it allows you to pay back your debts over a longer period of time, so the amount you pay each month towards your debts is lower. You can arrange one yourself but this can often prove difficult.
What happens in a debt management plan?
The first step is sitting down with an insolvency practitioner or going to a debt advice centre and working out your income and expenditure. Income is simply how much money you earn/receive each month and expenditure is how much you spend on the essentials you need to live. It is important at this point to not include your creditors (debt) when you calculate your expenditure.
Once you?ve worked this out, then you can see your disposable income:
DISPOSABLE INCOME = INCOME ? EXPENDITURE
From this, your advisor will know how much you can reasonably afford to pay to service your debts. From this, they will create a proposal for your creditors, outlining how much you will pay each month and how much your creditors will receive.
The plan will last for an agreed amount of time, usually several years, but once this payment period is over, your debts will have been paid in full. It?s worth remembering though that your credit rating may be affected after this.
How do I know if it?s right for me?
A debt management plan is often a good solution when you?re struggling to pay all your bills every month and often find yourself short. You do need to have a regular source of income, however, as you need to be able to pay regular sums each month.
The best way to find out if a debt management plan is right for you is to get professional advice, whether that be from the Citizens Advice Bureau or through a debt solutions company. Our staff have years of experience of helping people deal with debt and have the knowledge to advise you on the right debt solution for your needs.
~Peter Dean
Source: http://www.personal-finance-blog.com/2012/10/25/debt-management-plans/
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