Credit Counsellors and going on a Consolidation Program

How talking to a credit counsellor benefit you?

If you are struggling to meet your monthly financial commitments, it may be time to consider speaking to someone who can help.

• Are your monthly payments going to the interest 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.

If you are a person in debt (a debtor), talk to a credit counsellor today to find out about other ways to pay off and organise your debts.  When you can’t get a consolidation loan from the bank, there are alternatives to consider other that going bankrupt.Positive changes in your life will be rapid.

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.  Programs usually run up to about 54, and the end of which the debtor should be debt free of all unsecured debts.

The debtor makes a consolidated monthly payment, which is then prorated out to the creditors.The debtor has less to think about and that leads to reduced stress.  They only have to be concerned about a single (sometime bi-monthly), payment.

Interest Relief

The secret to getting debt free so fast on a debt management program is the interest relief.It is not uncommon today to see people agree to a personal loan or credit card, not understanding how the interest is applied.  This subject is for another article, but just to prove my point, one client we spoke with didn’t realise that by the time she finished off paying her high rate loan over 4 years, she would of paid double the loan amount.

Creditors of unsecured debts do not like the idea of debtors going bankrupt.Once all the fees are paid and the secured debts are paid off, the unsecured creditors are get what is left over.  Granting interest relief (lowering the interest, or usually stopping it altogether) means that a debtor will eventually meet their financial obligations.Then the cycle could start again meaning they are then available as customers to the creditors again!One hopes though that anyone on a debt management program learns a valuable lesson.

The shortfalls to Debt Management Programs?

Once the last payment has been made, expect to see that debt on your credit report for up to 2-3 years.  At the time of writing this, Equifax show this for 3 and TransUnion 2.This account will be shown as a R7 rating.The scale of the rating is 1 to 9.1 is the best and means that there are no missed payments and 9 is the worst like bankrupt.  R7 simply means that the account is paid off with the aid of a debt management program.

Not surprisingly, people don`t like the idea of an R7 on their credit report until they understand the financial freedom of becoming debt free.Your debt to income ratio severely effects your credit rating.  This basically means, how much of your monthly income is already assigned to outstanding debts.Having no debt and some R7 ratings becomes a little more welcoming.

Debtors have to stop using current credit cards and they are not allowed to apply for any more.Living without a credit card is not easy.Credit cards are convenient.Renting a car, buying a plane ticker or purchasing anything on the internet are perfect examples.If possible, consider applying for one of the many secured credit cards out there.While on a debt management program, secured credit cards are great tools to use to improve your credit rating.

Summary

A debt management program is really a great alternative when you have been declined a consolidation loan.Carrying debt will affect any persons quality of life.  It causes stress at home and prevents a person from enjoying life, as they should.

A program like this should teach a person to live accordingly in life.  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.You could lose you job, have family problems and economy fluctuations are all out of our control.It is difficult, but trying to be as prepared as possible for eventualities down the road does help.

 

 

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